The European Central Bank is widely expected to extend its quantitative easing programme by six months at its next policy meeting on Thursday, amid ongoing political risk and stubbornly low inflation.
The bank is largely expected to keep the size of its monthly bond purchases unchanged beyond its current end date of March 2017, at a pace of around €80bn a month, according to a majority of economists polled by Reuters.
Forty of 54 economists expect the central bank to maintain its bond buying pace of €80bn a month, while the remaining 14 anticipate the ECB to taper by €10bn to €20bn a month.
ECB President Mario Draghi said last week that the central bank would look at a variety of policy tools at its 8 December meeting. The ECB has already bought €1.4 trillion of euro-denominated bonds since launching the programme, driving borrowing costs to all time lows.
Bank of America Merrill Lynch (BAML) analysts believe that winding down the programme poses many risks, and is not currently an option for the central banks.
“We continue to think that in the face of a market-driven tightening in financial conditions and no trace of a recovery in core inflation, any reduction in the pace of buying would be risky at this stage,” a BAML report published on Friday said.
“Lower for longer would not help the ECB to deal with the technical constraints of the programme. Some thorny, politically charged decisions would have to be made on the parameters anyway, unless the ECB dramatically scales down the buying to below the initial pace of €60bn, which we don't think they can seriously contemplate.”
Political volatility sparked by key elections this year has contributed to Europe’s sluggish growth and inflation, most recently from events relating to Italy’s referendum and Austria’s presidential election on 4 December.
The ECB has already committed to stepping up its purchases of Italian government bonds in the short term to stabilise the bond market ahead of Italy’s referendum result on Sunday.
Investors have been withdrawing money out of Italy for eight consecutive months in October, according to Reuters, as investors and banks move cash into safer haven countries to safeguard themselves against political insecurity.