The European Central Bank is likely to hold off any fresh policy action on Thursday, but new staff forecasts will be in focus for signs of prolonged price weakness that could lead it to act again next year. <p>
After surprising markets last month with a cut in rates to a new record low of 0.25%, ECB President Mario Draghi said the Eurozone “may experience a prolonged period of low inflation” and that the central bank was ready to consider all available policy tools. This month’s ECB staff projections would give a fuller picture of how long that prolonged period would last, he said. <p>
To ease policy further, the central bank would need to go beyond traditional measures – a move ECB hawks would resist. Perhaps the easiest policy for the central bank to agree would be adding liquidity by either scrapping reserve requirements, which would add about €100bn to the financial system immediately, or ending sterilisation of its earlier bond purchases. <p>
<b>Should the new projections point to inflation still clearly undershooting the ECB’s target in 2015 – analysts expect a forecast of 1.3% or 1.4% – expectations will grow that the bank will take fresh policy action early next year.
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