FRANKFURT: The European Central Bank will leave interest rates unchanged on Thursday and try to reassure investors rattled by new turmoil in Europe and the US Federal Reserve's plans to begin winding up its stimulus.
The ECB meets against a backdrop of political crisis in Portugal that pushed its benchmark bond yields above 8 percent - a spike that stirred angst in financial markets already jittery after the Fed last month set out a plan to exit from its money-printing programme.
The tensions there, and in Greece, risk sapping confidence a year after ECB President Mario Draghi imposed some calm by vowing to do "whatever it takes" to save the currency.
"The ECB needs to reassure markets that it is not going to try to get ahead of the Fed and tighten even earlier, so it's all about guidance as far as that is possible at the ECB," said Berenberg bank economist Christian Schulz.
A Reuters poll of economists last week pointed to the ECB leaving its main refinancing rate on hold at 0.5 percent until at least the end of 2014.
An acceleration in euro zone inflation in June and stronger-than-expected consumer spending in France and Germany reinforce the ECB's projection for a slow euro zone recovery late this year, leaving it little grounds to justify a rate cut now.
But after Draghi disappointed markets at the bank's June meeting by dousing their expectations of any imminent policy action, he needs to strike a more reassuring tone this time even if the ECB keeps its powder dry.
Instability in Italy's ruling coalition and Greece's scramble to convince its lenders to dole out another tranche of aid add to the sense of turmoil ahead of the ECB meeting.
But with the ECB's bond-buying programme requiring a country to seek outside help from the euro rescue fund first and be issuing debt regularly on the bond market, none of the euro zone members in trouble qualify for that help, begging the question what can the ECB do.
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