Euro Zone Central Bank is expected to cut its deposit rate deeper into negative territory

Intra-Day Market Moving News and Views 
10 Mar 2016 01:40GMT

EUR/USD - ..... Euro pares yesterday's rally from 1.0946 to 1.1035 in Asia SS market remains nervous ahead of today's ECB meeting. ECB is set to unveil its second stimulus cocktail in three months on Thursday, spurred by fears that low energy costs are feeding into wages and prices, potentially perpetuating ultra-low inflation. 
The euro zone's central bank is widely expected to cut its deposit rate deeper into negative territory and adjust its 1.5 trillion euro asset-buying scheme, hoping to boost prices after inflation dipped back into negative territory last month. 

The ECB has little to show for the 700 billion euros it has spent buying government bonds and other assets in the past year, as tumbling raw materials prices blunt the impact of its quantitative easing. That raises the risk that people will lose faith in the bank's commitment to its mandate, dragging down long-term price expectations. 
Inflation has been below the ECB's nearly 2 percent target for three years and is likely to remain so for many more. 
Draghi has already said that acting too soon is better than acting too late, and that the rate meeting needs to recognise that the outlook for growth and inflation have deteriorated. But with policy already deep in unconventional territory, the ECB has few big guns left and most remaining options risk either negative side effects or potential legal challenges, suggesting the Governing Council will opt for a package of modest measures. 

Analysts polled expect the ECB to cut its deposit rate to -0.4 percent from -0.3 percent, charging banks more for keeping their cash with the bank overnight. They also see a 60 percent chance the ECB will raise its monthly asset purchases, probably by 10 billion euros to 70 billion euros a month. 
It could also firm up its forward guidance, drop a self-imposed limit not to buy assets yielding less than its deposit rate and launch a new targeted longer-term refinancing operation, possibly at a negative rate, to help boost lending, growth and eventually inflation. 

But more radical ideas, like an even deeper rate cut, a multi-tier deposit rate, or buying non-performing bank loans, are unlikely to gain traction within the diverse 25-member Governing Council that has shunned radical steps in several earlier tweaks of its asset-buying programme.