The European Central Bank looks set to keep its key rates steady and refrain from any additional stimulus measures at a meeting in Malta on Thursday, despite concern about chronically weak inflation, analysts said.
The strong euro, falling consumer prices and fears of a global economic slowdown provide ample argument for the ECB to ease monetary conditions still further in the 19-country eurozone.
But ECB watchers predict the guardian of the euro will intervene only verbally when its decision-making governing council meets in Malta and wait until later in the year to take any concrete policy action.
Markets have begun to speculate that the ECB could accelerate or increase its programme of so-called quantitative easing (QE) soon, given that consumer prices declined by 0.1 percent in the euro area in September.
In March, the ECB embarked on a scheme of sovereign bond purchases -- more than 1.0 trillion euros in all at a rate of 60 billion euros per month -- to bring inflation back up to levels that are more conducive to healthy economic growth.
While falling prices might appear to be good for consumers, they can be poisonous to the economy, because they may persuade households to delay purchases in the hope of lower prices, in turn prompting companies to hold off investment and hiring.
- More QE? -
"Market expectations about more QE have increased recently. Indeed, the stronger euro might be one of the ... factors about which the ECB has always warned," said ING DiBa economist Carsten Brzeski.
"In our view, however, the ECB will refrain from more QE, at least at the current juncture, and will rely on its often-used verbal intervention skills," the expert said.
Technical difficulties in stepping up the QE programme "and too many uncertainties about the future path of growth and inflation should motivate the ECB to postpone any decision on more QE," Brzeski said.
UniCredit economist Marco Valli agreed.
"We expect no action and dovish rhetoric, mainly intended to stem" the rise in the euro, he said.
After president Mario Draghi effectively announced the ECB's easing bias recently, the "governing council is in wait-and-see mode to assess incoming data and detect the possible materialisation of downside risks," Valli said.
A number of top ECB policymakers, including Draghi himself, have recently insisted it is too early to judge whether further action is needed just yet.
In addition, the ECB will have compiled its own new staff forecasts by December and those could well bolster the case for more stimulus.
Draghi has repeatedly said that the ECB stands ready to act if necessary.
And analysts believe that such action could take the form of an extension of the QE programme beyond its original timeframe of September 2016 or an acceleration or increase in the total amount of bonds purchased.
- Premature discussion -
But executive board member Benoit Coeure recently pointed out that only a third of the current QE programme had been executed so far.
And with the beneficial effects of a range of other policy measures -- unprecedented amounts of liquidity and historically low interest rates -- still only gradually making themselves felt, it was "premature to discuss" a new QE programme, Coeure said.
Nevertheless, "it is certainly our duty to be prepared to cope with all kinds of contingencies," he added.
The head of the Austrian central bank, Ewald Nowotny, said the ECB was "clearly" missing its inflation target.
While acknowledging that sharp falls in commodity and oil prices -- factors outside the central bank's control -- were the main cause, "core inflation rates are clearly below our target," Nowotny said.
The governing council should have the latest results of the ECB's Survey of Professional Forecasters (SPF) at Thursday's meeting, even if the data would probably only be officially released a day later.
In the last survey, the SPF suggested that the likelihood of the ECB falling short of its target in the long term had risen somewhat, said Commerzbank economist Michael Schubert.
"Should it climb further ... this would support our expectation that the ECB will decide to increase the volume of asset purchases in December," Schubert said.