The European Central Bank is expected to leave interest rates on hold on Thursday as it waits to see if the 17-member eurozone will pull itself out of recession.
Analysts believe that the Frankfurt-based bank will leave borrowing costs unchanged at 0.5 per cent, after it delivered a 25-basis-point reduction at its meeting four weeks ago.
“The ECB is more or less on auto-pilot,” said ING Bank global chief economist Erik Nielsen.
Since the bank’s last meeting, data has shown annual consumer prices rising, to 1.4 per cent, but still within the ECB’s annual inflation target range of below but close to 2 per cent.
Analysts say this could give the bank room to launch a new round of monetary action, including both a rate cut and measures to boost bank liquidity, should the eurozone fail to return to growth later in the year.
A slew of key economic indicators have raised hopes that the currency bloc’s long-running recession might be slowly coming to an end.
The European Commission said last month that its closely watched economic sentiment indicator had rebounded to 89.4 points in May, after falling to 88.6 points in April.
Despite record high unemployment, consumer confidence in the currency bloc is now at its highest level in nearly a year.
Official data released this week confirmed that the eurozone’s recession had eased during the first quarter, with the region’s economy shrinking by 0.2 per cent after it contracted by 0.6 per cent in the final three months of 2012.
The eurozone should stage “a very gradual recovery” later in the year, helped along by the ECB’s accommodative monetary policy and a pickup in foreign demand, bank chief Mario Draghi again said this week.
Once again, the market is expected to focus on Draghi’s press conference, in which he is due to unveil the bank’s latest inflation and economic growth forecasts, as set out in the ECB’s so-called staff projections.
Draghi is also likely to face questions from reporters about German-led resistance to a key part of the region’s proposed banking authority, which is to be part of the ECB’s operations.
Both the ECB and the European Commission see the formation of the banking union, which would include a fund for rescuing troubled banks, as a crucial step in helping stabilize the eurozone.
Last week, France joined Germany in calling for national bank authorities to retain the leading role in bailing out eurozone banks.