Chances ECB increases monthly QE spend next year just 40 percent: poll

By Deepti Govind

(Reuters) - The European Central Bank is not expected to top up the 60 billion euros a month it is currently spending on buying government bonds, according to a Reuters poll that also predicted steady growth but weak inflation in the coming year.

ECB policymakers, including President Mario Draghi, struck a dovish tone in speeches leading up to its Dec. 3 policy meeting, ramping up expectations for more aggressive monthly purchases, as well as a bigger cut in the deposit rate than it delivered.

Respondents in the poll of economists and analysts said the ECB's communication in recent months had been unclear.

"Mario Draghi's bad habit of creating market expectations by public appearances without having previously secured support within the Governing Council has backfired," said Marius Daheim, an economist at SEB.

"The outcome, however, is positive, as economic reason has trumped policy activism or submissiveness to financial markets."

Probabilities provided by economists in the survey for bigger ECB monthly asset purchases in the coming year ranged from as low as 1 percent to a high of 75 percent, giving a median of just 40 percent.

Draghi's biggest obstacle to bigger asset purchases is opposition from more conservative policymakers within the ECB's Governing Council, such as Bundesbank President Jens Weidmann, a vocal critic of the asset purchase program.

With the economy growing at a reasonable pace, unemployment falling and expectations inflation will pick up once the base effect of 2014's plunge in oil prices fades, many economists say there is good reason to hold off.

"There is obviously building an increasing opposition within the ECB (Governing Council) against further substantial easing measures," said LBBW's Elmar Voelker.

"We think that an increase in QE is only likely in the event of heightening deflation worries."

INFLATION WEAK BUT TO RISE GRADUALLY

Euro zone inflation has been running close to or below zero for almost a year, far from the ECB's target of just under 2 percent. Core inflation was 0.9 percent in November, higher than the headline rate, but still feeble.

Another concern for the ECB is the euro. Rather than falling last week after it eased policy, the currency rallied sharply. If sustained, that could keep a lid on imported inflation.

The latest Reuters poll predicted headline inflation will not reach 2 percent even by 2017 -- although economists don't expect the threat of deflation to return either.

Inflation is forecast at 1 percent in 2016 and 1.5 percent the year after, slight downgrades from the 1.1 and 1.6 percent consensus in last month's survey.

The latest ECB staff forecasts last week foresaw inflation at 1 percent next year and 1.6 percent in 2017.

"We think the headline inflation rate will rise and, therefore, we conclude that they should do additional measures but not such a big step like increasing the monthly purchase volume," said Commerzbank's ECB economist Michael Schubert.

Euro zone economic growth slowed to 0.3 percent in the third quarter from 0.4 percent in the previous period.

The latest Reuters poll predicts growth will average 0.4 percent in each quarter between now and the first quarter of 2017, unchanged from last month's consensus.

But not everyone is convinced the ECB has done enough.

Fathom Consulting economist Florian Baier assigned a 70 percent probability of the central bank deciding to raise its monthly spend next year.

"The ECB will have to do more as their current measures are insufficient to lift up (core) inflation meaningfully."

(Polling by Sarmista Sen and Siddharth Iyer; Editing by Ross Finley and Catherine Evans)

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