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Weak inflation and a sluggish, yet growing, euro area economy amid heightened political uncertainty, could present the European Central Bank President Mario Draghi with an excruciating dilemma whether to add more stimulus or not.
While the bank is widely expected to extend its asset purchases beyond March 2017 this year, it is unlikely that such an announcement would be made on Thursday.
Instead, equipped with the latest set of ECB Staff macroeconomic projections, the Governing Council is likely to decide to maintain status quo in its policy session in Frankfurt.
Even as ECB policymakers meet for a second time after the surprise 'Brexit' vote in late June, any severe economic impact from the event is yet to surface. That said, the risk of a negative shock remains as when and how the U.K. will exit the European Union is yet to be known.
Economic data since the July policy session have failed to give any signal on the future policy actions. Quarterly growth slowed to 0.3 percent from 0.5 percent. Retail sales rebounded and unemployment remains at a five-year low.
Headline inflation has lingered below the ECB's target of 'below, but close to 2 percent' since early 2013, holding steady at 0.2 percent in August. Though core inflation eased to 0.8 percent in August, it is likely to be insufficient to prompt the bank to act this month.
"The ECB seems to be increasingly aware of the adverse effects of its current monetary policy stance," ING Bank economist Carsten Brzeski said.
The economist pointed out that the hurdle to either deliver a bit more of the same - rate cuts, extensions to QE - or enter more unchartered territory by purchasing bank debt or stocks, has increased.
"This does not take away that we still see the ECB extending its QE until at least the end of 2017 (from March 2017 currently) later this year. Further rate cuts do not look likely," Brzeski said.
The benchmark rate, the refi, is at a record low zero percent, the deposit rate at -0.40 percent, and the marginal lending facility rate is at 0.25 percent. The three rates were previously lowered in March.
The ECB makes monthly asset purchases of EUR 80 billion and this is set to run until the end of March 2017.
The bank began purchasing corporate bonds in June, under its asset purchase plan. The first of the four auctions offering 4-year loans under the second round of targeted longer-term refinancing operations was also held that month.
In June, the ECB Staff raised the inflation forecast for this year to 0.2 percent from 0.1 percent seen in March. Projections for next year and 2018 were retained at 1.3 percent and 1.6 percent, respectively.
The growth forecast for this year was raised to 1.6 percent from 1.4 percent. The projection for next year was retained at 1.7 percent, while the forecast for 2018 was cut to 1.7 percent from 1.8 percent.
Capital Economics thinks the Eurozone economy still needs additional policy support, if not this month, then soon.
Monetary policy is certainly approaching its limits, but that should not prevent the ECB from providing more support altogether, Capital Economics economist Jonathan Loynes said.
"We think that the Governing Council might still decide to extend the length of its programme by pushing the expected end-date back from at least March next year to at least September," Loynes said. "And even if it decides to sit tight again, we suspect that pressure on it to act will soon build."
ECB Chief Draghi is also expected to hint at some change in the technicalities of asset purchases, such as an increase in the limit of purchases per issuance from 33 percent to 50 percent. Such moves are warranted as the bank could soon face a scarcity of eligible bonds to buy as it approaches the limits it has set on the volume of debt it can buy from each country.
