The debate about whether European Central Bank (ECB) president Mario Draghi will move to support the eurozone economy is particularly hot following recent weak growth and inflation data.
This weakness has prompted some market participants to predict Mr Draghi will announce more measures to support the economy - including purchasing government bonds via the process known as quantitative easing.
But a growing number of experts have suggested Mr Draghi is unlikely to embark on such a policy with others claiming such a move would be a mistake.
Kathleen Brooks, a research director at Forex.com, said even as the “evidence of economic deterioration stacks up”, she expected the ECB to “err on the side of caution” and “avoid announcing its first quantitative easing programme”.
“QE is not as easy for the ECB as it is for some other central banks,” she said.
“There are some hawkish members on the Governing Council who could oppose it and there are legal considerations, for example the German Constitutional Court found that the ECB’s outright monetary transactions programme went beyond its mandate, thus it is unlikely to look on QE kindly.”
She added Mr Draghi’s policy of targeted loans into the economy also only begins on September 18 and so to announce QE now would “leave this important financing programme dead in the water”.
Andrew Bosomworth, managing director and portfolio manager at Pimco, said it was “probably too early for a significant majority on the Governing Council to favour implementing QE at this point” but did think any further stimulus when it came would take the form of QE.
“To be effective, we think a QE programme would need to be about €750bn (£599.2bn) in size,” he said.
“About two-thirds of purchases would likely be central government securities with the balance comprising covered bonds, asset backed securities and European agencies and supra-nationals.
“The ECB’s capital key would provide a rough guide for the geographical distribution of purchases and we think they would centre on securities with three- to 10-year maturities.”
Azad Zangana, European economist at Schroders, said even though inflation had been “disappointingly low” alongside “weaker-than-expected growth” he was unsure Mr Draghi would unveil QE this week.
“While his [recent] speech was clearly dovish, we struggle to see the ECB announcing more aggressive measures like sovereign debt QE when extra liquidity to banks will be released next month, and possible asset-backed securities purchases are still being worked on,” he said.
“Markets may be in for disappointment at the September ECB meeting.”
John Ventre, head of multi-asset at Old Mutual Global Investors, said there could be a problem with an attempt at QE because “purchasing sovereign bonds may or may not be legal”.
“The ECB may or may not be planning a quantitative easing programme and even if it is it will probably be GDP weighted so as not to appear like a bailout,” he said.
“What would be the point in buying German 10-year bonds yielding less than 1 per cent?
“It is not that borrowing costs are too high in the eurozone but that no one wants to lend and few want to borrow. With the structural issues, that is hardly surprising. The bottom line is that outright QE might do nothing anyway. Those expecting it to are likely to be disappointed in my view.”
Ms Brooks agreed, adding that QE’s “main impact” was to push longer-term yields lower.
“Since bond yields are already low, and inflation continues to fall, QE may not be a panacea to boost price growth in the region,” she said.
