VIENNA (dpa-AFX) - European Central Bank President Mario Draghi will likely announce an extension of asset purchases by the central bank beyond March 2017 on Thursday, hoping to spread some Christmas cheer amid the high political uncertainty, especially after the 'no' vote in the Italian referendum last weekend.
The 25-member Governing Council is widely expected to leave interest rates unchanged for a sixth straight session but extend asset purchases of 80 billion euros a month by six months till September. That way, Draghi can play Santa, giving markets what they expected.
Last Christmas saw him play the Grinch, when he whipped up market expectations of stimulus in the run up to the December policy session but came up short.
The main refi rate is at a record low zero percent, the deposit rate at -0.40 percent, and the marginal lending facility rate is at 0.25 percent. The three rates were previously lowered in March, when the size of monthly asset purchases was also boosted by 20 billion euros.
The announcement from Frankfurt is due at 7.45 am ET and Draghi is set to begin his customary post-decision press conference at 8.30 am ET.
Draghi is also set to release the new set of ECB Staff macroeconomic projections that will also have the forecast for 2019 for the first time.
In September, the ECB Staff raised the Eurozone growth forecast for this year to 1.7 percent but trimmed the projection for next year to 1.6 percent. The outlook for 2018 was also lowered to 1.6 percent.
This year's inflation forecast was retained at 0.2 percent in September, but the projection for next year was cut to 1.2 percent. The outlook for 2018 was maintained at 1.6 percent.
Capital Economics expects hardly any change to the forecasts.
'However, we expect President Draghi to warn that the downside risks to those forecasts have increased in light of recent events,' economist Jennifer McKeown said.
She added, 'Indeed, we think that the economy's performance will be weaker than the Bank expects - we forecast 1 percent growth next year, with substantial downside risks if political threats crystallize.'
Rate-setters will also be presented with the results of the work of the Eurosystem committees on the options to ensure the smooth implementation of asset purchases until March 2017, or beyond, if necessary.
Economists expect the bank to tweak some technicalities of the asset purchase programme to address the bond scarcity issue.
'The ECB could, probably, even postpone addressing the scarcity issue,' ING Bank economist Carsten Brzeski said. 'If it does not, an increase of the threshold for purchases of non-CAC bonds per issuance from 33 percent to 49 percent is, in our view, the most likely option.'
As the ECB cannot go on buying bonds for long, some economists also expect policymakers to start discussing the scale back of its 1.7 trillion euro-asset purchases, a process called 'tapering', next year. That said, Draghi is unlikely to drop any hint on the same on Thursday to avoid triggering a 'taper-tantrum' amid the heightened political uncertainty.
The ECB Chief is also set to strengthen his call for structural and fiscal reforms, more so, as Europe is likely to have a difficult year ahead, with elections in several countries including Germany, France and Italy. The rising popularity of right-wing parties could be a concern for the central bank as it threatens to disrupt reforms and hurt growth with protectionist agendas.
Meanwhile, the euro area has been resilient to the 'Brexit' uncertainty and the Trump win in the U.S., according to some recent economic indicators.
Eurozone growth remained steady at 0.3 percent in the third quarter and the unemployment rate eased to 9.8 percent in October, the lowest level since July 2009.
Inflation accelerated to 0.6 percent in November, its highest level since April 2014. The figure has been below the ECB's target of 'below, but close to 2 percent' since early 2013.
Copyright RTT News/dpa-AFX