The European Central Bank is expected to leave interest rates unchanged at its governing council meeting in Frankfurt, following the central bank's surprise quarter of a percentage cut in November.
With the benchmark interest rate now at a historic low of 0.25 per cent, most analysts are not expecting any interest rate cuts, despite no firm signs that the trend of low inflation in the euro zone is adjusting.
A persistently low inflation rate in the euro zone – in particular a sharp drop to a four-year low of 0.7 per cent in October – prompted last month’s decision. It is understood to have been opposed by six governing council members. Inflation did increase last month, according to the flash estimate for November, but only to 0.9 per cent, well below the ECB’s mandate to keep inflation close to but below 2 per cent.
Nonetheless market watchers will be closely monitoring any signs of ECB’s intentions to engage in “non-conventional” measures, such as a new long-term refinancing operations (LTRO) for banks, or an asset-buying programme.
Figures published yesterday confirmed earlier estimates that the euro zone economy grew by a disappointing 0.1 per cent in the third quarter, compared to growth of 0.3 per cent in the second quarter. Manufacturing figures also showed a slowdown in manufacturing activity in the euro area.
