The European Central Bank is expected to give few clues on its bond buying plans on Thursday, instead pressing governments to do more to tackle the euro debt crisis while it stands guard against firming price pressures.
The bank is set to keep euro zone interest rates on hold at the record low 1% they have been at since May 2009.
Financial markets wonder whether the ECB can increase its bond purchases to support Portugal — the latest government under pressure in a crisis which policymakers want to halt before it reaches the much bigger Spanish economy.
The pressure on the ECB to buy bonds may be eased by Portugal's success in an auction of its benchmark 10-year bond on Wednesday and a call from the EU's top economic official for a stronger European financial safety net.
J.P. Morgan economist Greg Fuzesi said ECB President Jean-Claude Trichet should welcome a call from the EU's monetary affairs commissioner for ministers to look next week at reinforcing the effective lending capacity of the rescue fund.
"If he adds his voice of support … that might help to nudge Germany and some of the countries that have been more sceptical in the direction of supporting this," Fuzesi said.
ECB buying of Portuguese bonds has bought Lisbon time and although it got through Wednesday's auction unscathed, markets still have concerns about Portugal's ability to finance itself.
Spain, another of those in markets' line of fire, faces its own test on Thursday as it holds it first bond auction of 2011.
Against this backdrop, the ECB is likely to give few indications about the future volume of its bond buys, with the central bank keen to limit its purchases and keep the onus on governments to deal with the problem.
That scheme, which has left the ECB exposed to potential losses, has divided opinion within the bank, with Germany's Bundesbank chief Axel Weber voicing his opposition publicly.
"It is not in the ECB's interest to make any disclosure/commitment on the Securities Markets Program," UniCredit economist Marco Valli wrote in a research note.
"Trichet should limit himself to stating that the programme is ongoing and will be adjusted as needed," he added.
Keeping its bond buying plans ambiguous affords the ECB an element of surprise when it acts, generating more impact.
INFLATION MONITORING
The meeting is the first since Estonia joined the currency bloc on January 1, bringing its membership to 17 countries. The rate decision will be announced at 1245 GMT and Trichet and ECB Vice President Vitor Constancio will hold a news conference at 1330 GMT.
Discussion will focus on last month's jump in euro zone inflation to 2.2% — the first time in two years that it has risen above the bank's target of just below 2%.
Several countries are already raising rates. South Korea and Thailand were the latest Asian economies this week to hike by another 25 basis points as policymakers battle the impact of surging prices of food and other commodities.
Recoveries from the global recession — especially in emerging economies like China and India — have bolstered price growth, and the jump in food prices is also raising concerns even in Western states where growth remains weak.
The ECB could change the language on inflation in its post-meeting statement, dropping last month's line that "inflationary pressures over the medium term remain contained" — but this is unlikely. How the bank phrases the level of risk to the inflation outlook, could be telling, however.
Analysts say they hope the ECB has learned from its experience in 2008, when it raised rates due to oil price-fuelled inflation just ahead of the Lehman bankruptcy that tipped the global financial system into full-blown crisis.
"You would probably need a longer period of above 2% inflation to get them worried," said ABN Amro economist Nick Kounis.
The ECB is expected to confirm rates remain appropriate and say policy is accommodative, language introduced to the statement in September after a three-year absence.
Last month, the ECB decided it would keep giving banks unlimited liquidity for the whole of the first quarter, meaning there is no need for it to revisit this issue until March.
