What are markets expecting from the ECB on Thursday?

[Leon Mathias]

[Ignatius Bose]

The European Central Bank is expected to announce its interest rate decision following its monetary policy meeting on Thursday. While policymakers are expected to leave interest rates unchanged for now, investors expect the central bank to give some indications that it could be moving back towards the easier monetary policy by laying the foundation for an interest rate cut and additional stimulus later this year.

Markets expect the ECB to amend its forward guidance which pledges to hold interest rates at “present levels” until the first half of next year, building the case to slash its deposit rate, currently at minus 0.4%. The ECB is also expected to issue a statement about its willingness to restart its bond-buying program which it discontinued in December last year.

With global central banks moving towards a softer monetary policy on the back of waning growth and falling inflation in spite of a tight labour market, the ECB’s tweak in its policy statement could signal a rate cut as early as September, a month before Draghi’s eight-year term expires in October.

While some analysts see an outside chance of the ECB cutting rates on Thursday, citing that the macroeconomic conditions laid out by the central bank to have been met, a majority of market experts anticipate the ECB to cut by 10 basis points in September.