ECB to wait for stimulus to sink in, Draghi style in limelight

Thu Nov 6, 2014 4:20am EST
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By Eva Taylor

FRANKFURT (Reuters) - The European Central Bank is set to stick to the policy path laid out over the summer when it meets on Thursday, waiting for its stimulus to unfold before considering further steps.

The November policy meeting takes place against a backdrop of meager growth prospects for the euro zone and mounting discomfort among Governing Council members over ECB President Mario Draghi's leadership style.

Reuters reported on Tuesday that national central bankers in the euro area plan to challenge Draghi over what they see as his secretive management style and erratic communication.

But little to no action is expected on further stimulus.

"Recent data has been weak and the pressure on the ECB to add more monetary stimulus has risen further. Yet, we think the ECB is in a 'wait and see' mode now and do not expect new policy measures or major new guidance to be provided," said UBS economist Reinhard Cluse.

To keep the euro zone from slipping into deflation, the ECB has started pumping more money into the banking system through purchases of private debt and offers of long-term loans, aiming to boost its balance sheet by up to 1 trillion euros.

There is growing doubt whether its current measures will be enough, but the ECB is expected to wait until it gets a clearer view of the economy and the impact of its asset purchases and four-year loans to banks before adding further stimulus.

"My sense is that it's not sufficient and that we will see the ECB stepping up and buying corporate bonds," said Moody's chief economist Mark Zandi, pointing to next year.   Continued...

The headquarters of the European Central Bank (ECB) are pictured in Frankfurt June 6, 2013.   REUTERS/Ralph Orlowski