Investing.com - European Central Bank President Mario Draghi will have to weigh his words very carefully at the ECB's news conference Thursday after its monetary policy meeting in order not to spook the markets, anxious for guidance on the possible tapering of the bank's asset purchases.
Market participants widely expect the ECB to leave monetary policy unchanged at Thursday's meeting.
The ECB's current key lending rate stands at 0.0% and the deposit rate at minus -0.4%.
Quantitative easing at €60 billion a month is expected to remain in place until the end of the year.
Remarks by ECB policymaker François Villeroy de Galhau Wednesday suggested a cautious approach by the bank. While arguing that deflation had been defeated, he said accommodation is still needed.
"We have made progress, but we have not yet reached the target and so there is still a need for our accommodative monetary policy," Villeroy said.
At most, the ECB may tweak its forward guidance. The minutes of the bank's June meeting showed policy members discussed removing the reference to an easing bias but opted against doing so.
The minutes said "even small and incremental changes" in the ECB's communication "could be misperceived as signalling a more fundamental change in policy direction. "
"This could trigger unwarranted movements in financial conditions, which could put the prospects of a sustained adjustment of inflation at risk," the minutes added.
Draghi roiled the markets in late June as he noted the euro-zone recovery was continuing apace with reflationary pressures replacing deflationary ones, causing a spike in the euro on perceptions the ECB was signaling the possible gradual removal of the bank's massive stimulus program.
Euro-zone bond yields have also risen of late. The yield on the 10-year Bund touched the 0.6% mark this month after having traded in negative territory.
The ECB subsequently said this was not the case and that Draghi's remarks had been misinterpreted.
The ECB said in the minutes of its June meeting that the risks to the euro-zone economy are balanced, with inflation running well below the bank's medium-term target of close to but below 2% on a self-sustaining basis. Wage growth in the bloc also remains sluggish.
The ECB is not expected to say anything on possible tapering until after the summer recess, with the gradual winding down of asset purchases not seen taking place until next year.
Investors will also look to any comments on the current strength of the euro, which hit 14-month highs this week at above the $1.15 mark.
The rise in the euro complicates the ECB's task of achieving its inflation target as it depressed prices of imported goods and services.