MARIO DRAGHI, president of the European Central Bank, is expected to signal this week that he is ready to launch another wave of monetary stimulus to boost the eurozone economy.
European rate-setters meet on Thursday in Malta to decide whether the economy needs another shot in the arm. Analysts expect the ECB to keep rates on hold, but think it will signal another phase of quantitative easing, or QE2, before the end of the year.
Despite initial hopes that QE1 had boosted the euro area, policymakers fear it has not done enough to banish the threat of deflation. Eurozone inflation dipped 0.1% in September following a 0.1% rise in August, according to data released last week. This was its lowest level since March.
The euro is also 1% higher than at the last ECB meeting in September, which could weigh on exports and therefore inflation. German exports and industrial production both fell sharply in August.
Analysts say Draghi could increase the amount of asset purchases from the current €60bn a month, or extend the programme into 2017.
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“Without a quick response from the ECB, we think the new configuration for world demand combined with tightened financial conditions could cost the euro area’s GDP growth 0.2 to 0.3 percentage points,” said Gilles Moëc at Bank of America Merrill Lynch.