The European Central Bank's governing council has ditched chilly Frankfurt for the balmy atmosphere of Malta this week for its regular monetary policy meeting.
As ECB President Mario Draghi and policymakers enjoy the warmer climate, one subject that is expected to come up is whether the bank needs to turn up the heat on its €1 trillion bond-buying programme.
Draghi has already dropped hints that the central bank's quantitative easing programme will be extended beyond its September 2016 putative deadline, sparking speculation among economists as to if and when the move might be announced.
Mr Draghi and his Governing Council are meeting to set monetary policy for a 19-nation region that is seeing its recovery buffeted by slowing international trade and global market volatility. Officials are likely to say by the end of the year that they have no choice but to add stimulus, and may even reach that conclusion as soon as today, according to economists in a Bloomberg survey.
While the economists surveyed say the ECB will probably hold off from announcing more quantitative easing immediately, 81 percent of the 53 respondents predict it will do so eventually, compared with 68 percent in a similar poll last month.
Of those who expect an expansion in the stimulus plan, 56 percent said it'll happen this year and 30 percent said the decision will be taken next quarter.
Of the economists that see QE being altered, 81 percent said the ECB will extend the duration of the programme past the initial end-date of September 2016, and 42 percent said officials will increase the size of monthly purchases from €60 billion.
Just over a quarter said the central bank will expand the range of assets it buys beyond the current list of public-sector debt, covered bonds and asset-backed securities.
A further cut to the deposit rate was forecast by 4 percent of respondents.
"We will fully implement our monthly asset purchases of €60 billion ... They are intended to run until the end of September 2016, or beyond, if necessary, and, in any case, until we see a sustained adjustment in the path of inflation that is consistent with our aim of achieving inflation rates below, but close to, 2 percent over the medium term," Draghi said last month at his regular media briefing.
The massive QE programme was launched in March this year to help push inflation back towards the targeted 2 percent level and boost liquidity in the 19-country euro zone.
However, bank lending remains low and prices in the euro area fell by an average of 0.1 percent in September. Growth remains uneven, with the economies of Italy, Greece, Finland and Austria seen expanding by less than 1 percent this year.
While ECB speakers have publicly trailed the line that it's too early to tell whether an emerging-market downturn and commodity-price slump will derail the euro area's already-sluggish revival, the pressures are mounting. Governing Council member Ewald Nowotny sent the euro tumbling last week when he said even core inflation, which strips out the effect of lower energy prices, is "clearly" below target.
"One has to say that we're clearly missing our target," Nowotny said in Warsaw on October 15. "The ECB is using the monetary-policy instruments available, but in my view it is quite obvious that in the current economic situation additional sets of instruments are necessary."
Nowotny later told Poland's Puls Biznesu newspaper that it's too early to talk about adding stimulus "because we still have to wait almost a year till September." More effort is needed from structural and fiscal policies, he said.
Economists at BNP Paribas expect a move to be announced in December 2015, following a forecast further decline in the euro versus the US dollar.
"We expect no policy change at Thursday's ECB meeting, but look for EURUSD to fall to lower levels," Michael Sneyd and Charlotta Puhringer said in a BNP Paribas note last week.
"It is only a matter of time before more action is taken," said Alan McQuaid, chief economist at Merrion Capital Group in Dublin. "Inflationary pressures remain very muted, and unless there is a dramatic rise in the price of oil, which looks unlikely in the short term, then the ECB is not going to meet its inflation target any time soon."
Vasileios Gkionakis, global head of foreign exchange strategy at UniCredit Research, also forecast a decline in EURUSD and an extension to quantitative easing being announced in early 2016.
"Intra-meeting developments so far have not been sufficient, in our view, for the central bank to pull the trigger on QE2... But we believe that ECB President Mario Draghi will formulate dovish rhetoric to avoid any further appreciation in the exchange rate, which would result in a tightening of financial conditions," he said in a research note on Friday.
Grounds for extending QE would include inflation that remains near zero, economic growth concerns and external risks from a slowing China, stock market instability and the crisis in Syria and the Middle East.
On the flip side, oil prices remain low, which is a boost for the predominately energy-importing euro zone countries. Plus, confidence indicators remain surprisingly solid, with the official Economic Sentiment Indicator for the euro area rising 1.5 points to 105.6 in September.
"As a last resort, we believe that a cut in the rate of the deposit facility is a possibility," said Philippe Gudin, an economist at Barclays in Paris. "However, we think this option is probably unlikely to be triggered before year-end as it is still quite controversial."
On the other hand, ING's Carsten Brzeski said that although the macro climate did not appear to justify more QE, the ECB faced a "communication trap" because of speculation about further action.
"While doing nothing would somewhat thwart the official line that QE was started to fight deflation, stepping up QE could bring back inner controversies and distort the unity within the Governing Council," the ING chief economist for Germany and Austria said in a note on Monday.
So far, policy makers have been consistent in saying it's too soon to decide what to do. Executive Board member Sabine Lautenschlaeger said in an interview in Lima this month that talking about concrete measures now would be "really premature" and reiterated the ECB's stance that only governments can turn the cyclical recovery into a structural one.
RBS macro credit and rates analysts forecast that the ECB's QE programme could be extended by six months to March 2017.
"On Thursday, the ECB may decide to keep policy on hold, while setting the scene for an expansion of QE before the end of 2015. We expect acknowledgements of the growing economic headwinds and downside risk to inflation," said analysts led by Alberto Gallo, RBS head of macro credit research.Bottom of Form
He added that the ECB might also opt to diversify its purchases into bank loans, securitizations and non-financial corporate bonds - and potentially even equities.
State-backed names that could be added to the ECB program include France's EDF and GDF Suez, Deutsche Telekom and Orange, Gallo said.
Should the risks rise further, an extension of QE "would not encounter strong resistance" in the Governing Council, said Anna Maria Grimaldi, an economist at Intesa Sanpaolo SpA in Milan. "An increase in the monthly target cannot be ruled out, but could encounter substantial resistance within the council and would probably need to be preceded by downward revisions to core inflation forecasts."