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The European Central Bank is set to leave its interest rates and forward guidance unchanged on Thursday, after ending its massive asset purchase programme in December, as a myriad of risks including the persistent slowing of the economy, global trade tensions and the Brexit chaos mar the outlook for Eurozone growth.
The Governing Council, led by ECB President Mario Draghi, is set to announce its latest policy decision at 7.45 am ET in Frankfurt.
The main refi rate is currently at a record-low zero percent and the deposit rate at -0.40 percent. The marginal lending facility rate is at 0.25 percent.
Eurozone interest rates were raised last in July 2011 by 25 basis points. The current forward guidance of the ECB suggests that an interest rate hike is likely only in late 2019.
Given the weaker growth and inflation outlook, and the persistent uncertainties linked to global trade and politics, some economists now expect the bank to raise interest rates only in 2020.
That would make Draghi, the only ECB President thus far who did not raise interest rates during his tenure.
ECB Chief Economist Peter Praet's term is set to end in May and Draghi's tenure in October.
Draghi is set to hold his customary post-decision press conference at 8.30 am ET in Frankfurt.
The bank ended its four-year long massive EUR 2.6 trillion Asset Purchase Programme in December.
Saying that it is "enhancing its forward guidance on reinvestment", the central bank stated that it will reinvest bond sale proceeds "for an extended period of time past the date when it starts raising the key ECB interest rates."
Policymakers chose to adopt a cautious stance towards terming the risks to the euro area economic outlook as "downside", minutes from December policy session showed. Instead, the ECB said the risks remained "broadly balanced".
"The recent news has been so disappointing that policymakers are likely to go
further this time in acknowledging that the risks to their economic forecasts (which will not be revised again until March) are now tilted to the downside," Capital Economics economist Andrew Kenningham said.
"Indeed, rather than providing a steer about the timetable for further policy tightening, the Governing Council may soon have to dust off its past language hinting at further policy loosening," the economist added.
In December, the ECB rate-setters assessed the risk situation as "fragile and fluid", saying that risks could quickly regain prominence or new uncertainties could emerge, the minutes said.
However, some members cited the emergence of new upside risks and said the recent negative news have been factored into the downward revision of the staff projection.
The ECB Staff trimmed the growth and inflation projections for this year in December. The euro area growth forecast for this year was trimmed to 1.7 percent from 1.8 percent. The inflation forecast for this year was lowered to 1.6 percent from 1.7 percent.
Headline inflation eased to an eight-month low of 1.6 percent in December, while core price growth held steady at 1 percent.
"For the time being,...being a cool dude who is on high alert rather than panicking into impulsive action seems to be the right strategy," ING economist Carsten Brzeski said.
The economist stressed that the situation is not yet threatening enough for the ECB to return to crisis mode, nor was there a quick-win instrument left in the bank's policy toolbox.
"Consequently, we expect ECB President Mario Draghi to leave the ECB's forward-guidance on rates unchanged, while at the same time, adding a dovish note by stressing the ECB's data-dependency and downside risks to growth," said Brzeski, who thinks the bank will wait at least until the June meeting before changing its forward guidance on rates.
In the December meeting, the Governing Council also debated, re-launching its offering of cheap loans with longer duration to businesses.
Under the ECB's earlier tool named the targeted longer-term refinancing operations, or TLTRO, the ECB gives longer-term loans to financial institutions at attractive rates to boost lending in the real economy.
Draghi is likely to face several questions on the likelihood of re-launching TLTRO during his post-decision press conference.
Reporters are also expected to pose questions on topics ranging from trade protectionism, China slowdown to those on the domestic front such as the the Italian budget crisis and the "yellow vests" protests in France.
Recent economic data such as confidence indicators and the purchasing managers' survey measures have also been relatively weak and suggested a broad-based slowdown across the big four euro economies.
That said, the German economy ministry said the biggest euro area economy likely avoided slipping into a technical recession in the fourth quarter.
On Monday, the International Monetary Fund trimmed its growth projections for this year and next to3.5 percent iand 3.6 percent, respectively, saying that risks to the global growth are tilted to the downside.
The lender said euro area growth is set to slow from 1.8 percent last year to 1.6 percent this year, which is 0.3 percentage points less than the previous projection. Growth was forecast to ease further in 2020 to 1.7 percent.