The European Central Bank maintained status quo in the final rate-setting session of the year as policymakers chose to take more time to judge the impact of its previous stimulus measures despite recent weak economic data raising the pressure on the bank for more action.
The Governing Council, led by President Mario Draghi, held the refinancing rate at a record low 0.05 percent on Thursday, following its meeting in Frankfurt. The decision was in line with economists' expectations. The bank kept rates unchanged for a third straight month.
The bank also left unchanged the deposit rate at -0.20 percent and the marginal lending rate at 0.30 percent. The three main interest rates were lowered by 10 basis points in September.
The ECB had slashed the deposit rate from zero to negative in June, which in effect meant charging Eurozone banks for parking excess funds at the ECB, which was a first for a leading central bank.
Draghi is set hold his customary post-decision press conference at 8.30 am ET. His words will be keenly scrutinized for any hint at the central bank opting for a full scale quantitative easing, involving the purchase of government bonds and possibly corporate bonds, in the coming months.
Economists do not expect any measures to come this month, given the dovish talk from ECB Vice President Vitor Constancio that policymakers need more time to judge the impact of previous stimulus measures.
"Nonetheless, Mr Draghi is likely to repeat or even strengthen his recent hints that QE is coming very soon," Capital Economics economist Jonathan Loynes said.
"Accordingly, if it does not come today, we expect a programme of sovereign debt purchases to be launched in January. But whether it will be big and effective enough to revive the euro-zone economy is another matter."
The proposals for boosting the ECB balance sheet to EUR 1 trillion and buying sovereign bonds face stiff opposition from different quarters, especially from the most influential state - Germany. While there has been some speculation of the bank discussing the purchase of corporate bonds.
The bank already started buying covered bonds and asset-backed securities, measures which were announced in September.
Deflationary concerns refuse to leave the region as recent data showed that consumer price inflation eased to a five-year low of 0.3 percent in November. That is much away from the ECB's aim of keeping inflation 'below, but close to 2 percent'.
There were hardly any sign of inflationary pressures in the pipeline as producer prices dropped at the fastest pace in 18 months during October, dragged down by a slump in energy prices.
Private sector growth eased to a 16-month low in November after new orders declined for the first time this year, the latest purchasing managers' survey showed this week. Germany and France also revealed weakness in private sector activity.
Retail sales rose less than expected in October, while the unemployment rate held steady at 11.5 percent for a second straight month. Private sector lending continued to fall in October.
Apparently, the only piece of comforting news for the bloc was a second consecutive increase in economic sentiment in November as an improvement in factory confidence offset a deterioration in consumer morale.
The central bank will also release the latest set of staff forecasts for inflation and growth. Economists are looking forward to a further downward revision in the projections. In September, inflation forecast for this year was reduced to 0.6 and the figure was seen rising to 1.1 percent next year.
Further, the second round of the bank's targeted longer term refinancing operations, or TLTRO, is due this month. Policymakers expect the take-up of loans by banks to be better than the previous operation in September.
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