ECB's Not Set to Fire 'Bazooka' Yet

The European Central Bank is unlikely to fire the new anti-crisis "bazooka" it unveiled two months ago, and will keep its gunpowder dry on interest rates as well at its meeting on Thursday, analysts said.

The ECB's OMT bond-purchase program -- announced by president Mario Draghi in September -- has been credited with marking a turning point in financial market sentiment towards the crisis-wracked euro even though it has not actually been used.

The mere announcement of the program was enough to bring borrowing costs of countries such as Spain sharply down from previous dangerous highs.

And while the feel-good effects show no sign of fading just yet, the ECB is unlikely to put it into action, analysts said.

The ECB's monthly policy meeting "will likely be a relatively uneventful meeting. We do not expect any interest rate change or any major announcement about monetary policy," said Marie Diron of Ernst & Young Eurozone Forecast.

Berenberg Bank economist Christian Schulz agreed.

"This week's ECB meeting is unlikely to produce any substantial decisions and will thus remain in the shadow of the political events on both sides of the Atlantic," he said, referring to the U.S. presidential election and the Greek parliamentary vote on austerity measures.

Schulz said the bank would keep its key refinancing rate unchanged at 0.75 percent.

And Draghi, who has consistently said the ball is now in the court of the governments to get their finances in order, is also unlikely to announce any new liquidity measures, analysts said.

"We see the central bank firmly on hold both on conventional and unconventional policy. The room for surprises seems quite limited," said UniCredit analyst Marco Valli.

"Neither the data that have become available since last month nor actions from euro area governments justify additional measures at this point," agreed analysts at Goldman Sachs.

On Wednesday, Germany's so-called "Five Wise Men" of economic advisers said that it was largely the ECB's non-standard policy moves -- such as its unlimited provision of liquidity and its controversial bond purchase programs -- that had helped stabilize the eurozone financial system throughout the crisis.

But the experts warned that such measures risked blurring the line between monetary and fiscal policy and should therefore be seen as a stop-gap solution only.

The ECB's bond purchases in particular have come under fire, not least in Germany, for fueling inflation and covertly financing heavily-indebted governments.

But Draghi rejected such charges again on Wednesday.

"Our actions will not lead to disguised financing of governments. Our actions will not lead to inflation," he insisted.

Analysts similarly credited the bond-buying plan with calming the financial markets.

"Without having bought any single government bond, the ECB has created relative calm in financial markets," said ING Belgium economist Carsten Brzeski.

However, the continuing recession and declining loans to the private sector have increased deflationary risks, he said.

During the course of Draghi's first year at the ECB helm, experience had shown that, "even if the ECB keeps its powder dry at this week's meeting, the job is not yet finished," Brzeski said.

"With the OMT bond-purchase program, the eurozone has finally received its ultimate backstop against breaking-up fears. However, the backstop would not be enough to restore growth and to tackle deflationary tendencies," he cautioned.