ECB To Boost Growth Outlook As Stellar Year Comes To A Close

The European Central Bank is set to raise its growth forecasts on Thursday as the single currency economy gained momentum in a remarkably uneventful year, boosting policymakers' confidence as they gear up to trim asset purchases in January.

The Governing Council, led by ECB President Mario Draghi, is widely expected to leave the key interest rates unchanged and retain the asset purchases on Thursday in the final policy-session for this year.

In the previous session in October, the bank decided to halve the size of its monthly asset purchases to EUR 30 billion at the start of next year and to continue till September.

The bank opted the "lower for longer" style of tapering for a second time this year and many hope this would be the beginning of the end of ultra-easy monetary policy since the 2007-08 global financial crisis.

However, economists do not expect any hike in the interest rates until the latter half of 2019 as inflation is likely to remain below the ECB's target of "below, but close to 2 percent".

The rate decision announcement is due at 7.45 am ET on Thursday in Frankfurt and Draghi is scheduled to hold his customary post-decision press conference at 8.30 am ET.

The main refi rate is currently at a record low zero percent and the deposit rate at -0.40 percent. The marginal lending facility rate is 0.25 percent.

As the crucial announcement on stimulus was made in October, Draghi is unlikely to dwell on the subject this month. Instead, he is expected to spread Christmas cheer and head into the holiday season with an upbeat outlook on the euro area economy.

Draghi is set to unveil the latest ECB staff macroeconomic projections that will include the first round of forecasts for 2020.

In the September round, the Eurozone growth forecast for this year was raised to 2.2 percent from 1.9 percent, while the projection for next year was retained at 1.8 percent. The outlook for 2019 was also left unchanged at 1.7 percent.

The inflation forecast for this year was retained at 1.5 percent, while the outlook for next year was cut to 1.2 percent from 1.3 percent. The price growth forecast for 2019 was slashed to 1.5 percent from 1.6 percent.

ING Diba's economist Carsten Brzeski expects Draghi to reconfirm the main messages on stimulus and interest rates from the October meeting.

"With some upward revision for Eurozone growth for this year and next, the ECB should join the growing choir of Eurozone optimists," Brzeski said.

"Even more important for the future path of monetary policy, however, will be the ECB's inflation forecasts for 2019 and 2020."

The European Commission predicted in November that the Eurozone is set for its fastest growth in a decade this year, thanks to resilient private consumption, stronger global growth and falling unemployment.

The executive arm of the European Union raised the euro area growth forecast for this year to 2.2 percent from 1.7 percent. The projection for next year was boosted to 2.1 percent from 1.8 percent. The commission forecast 1.9 percent expansion for 2019.

Meanwhile, the minutes of the October session revealed a growing rift in the rate-setting body over the process of winding down the stimulus, dubbed 'tapering', and forward guidance.

Draghi may need to give some gentle hints about the ultimate end of extraordinary policy support to appease the hawks on the Governing Council, Capital Economics economist Jennifer McKeown said.

"But on the other hand, it is far from clear that the ECB's previously stated conditions of a self- sustaining and widespread rise in underlying inflation have been met," the economist said.

"...At the very least, they will be reluctant to give any signals about future monetary policy that might prompt the currency [euro] to rise sharply again and threaten the already fragile upturn in price pressures."