ECB Policy Decision, Macoeconomic Projections On Market Watch

The market is expected to closely watch the European Central Bank's monetary policy decision on Thursday, where economists believe policymakers will hold the benchmark interest rate at its all-time low, while the bank publishes fresh macroeconomic projections for the year.

After the interest rate announcement today, the ECB president Mario Draghi will explain the Governing Council's monetary policy rhetoric and answer journalists' questions, the event that usually steers the sentiment into a new direction, especially towards the euro!

The ECB interest rate is likely to be held at 0.75 percent. That would be the eighth month the bank holds the benchmark at this record low. Recent data showed that the 17-nation currency bloc shrank unexpectedly at the sharpest fall since the depths of the recession four years ago.

New projections for growth, unemployment and inflation will be be published by the ECB, 45 minutes following the interest rate decision, with a possible downgrade today. The ECB said the economy would contract 0.3 percent, compared with prior forecast of 0.1 percent growth.

Meanwhile, Draghi is seen leaving the door open for an interest rate cut in light of the Bank's gloomy forecast. The ECB President might indicate the bank is not rushing towards an exit of monetary stimulus as long while inflation remains below the ECB's 2 percent target.

In the euro area, the annual inflation rate was at 1.8 percent in February, down from 2.0 percent a month ago, while jobless rates jumped to new record in the same period, which might prompt the ECB to help the stimulus-hungry economy when its Governing Council meeting today.

Although the central bank is unlikely to throw a curveball this month, a near boost of monetary stimulus or interest rate cut aren’t' ruled out either! However, doubts are growing that such moves may not credibly tackle the fragile recovery like it did three years ago when undertaken.

Overall, a surprise cut in interest rate or a downgrade to macroeconomic projections of the euro, will likely weigh further on the single currency below the psychological barrier of $1.30, while Draghi's comments were actually behind the its plunge from the peaks of $1.36.

Stock markets might also draw some strength from the any possible monetary expansion if embarked by the ECB this month, as European stocks rallied to its highest levels in four years ahead of the ECB projections, which if downgraded would likely weigh on stocks as well.