Image via European Central Bank

The European Central Bank’s meeting this Thursday is unlikely to prove to be a market mover as expectations are high that the central bank will be expanding its QE purchases.

The ECB’s governing council meets on Thursday, December 8 where the central bank is expected to announce its decision on whether it will expand its QE purchases and perhaps tweak the size of its bond purchases as well. The central bank could also be seen announcing whether it will change the eligibility criteria for its bond purchases.

The European central bank had initially set a date for the QE purchases to end by March 2017. This view brought forth expectations of the tapering announcement in the previous meetings, which was quickly brushed aside with the ECB noting that QE was not discussed. The markets had begun to price in the fact that ECB could begin winding down its QE purchases in light of a somewhat modest pickup in the euro area.

The hawkish view, however, changed after ECB President Mario Draghi, speaking over the past few weeks hinted that the central bank would maintain its pace of purchases and probably look at an extension beyond the initial deadline of March 2017. Officials maintained that QE remained a key part of the euro area recovery and highlighted the risks of a premature exit. Therefore, there is a strong consensus that the ECB will maintain a dovish rhetoric underlining its view that the central bank will continue with its QE purchases until there was a clear trend in underlying inflation.

Inflation has shown signs of a pickup, with oil prices also rising steadily and up from its $30 handle seen in February this year, but this has been brushed aside as officials who seek more conviction that inflation is starting to move higher.

Small but positive signs of economic recovery in the Eurozone

At the latest reading, Eurozone’s flash inflation estimates showed the headline CPI at 0.6% while the core CPI was seen at 0.8%. Although inflation remains well below the 2% target rate, officials are not convinced about the recent increase in inflation and its current trend.