FRANKFURT: The European Central Bank's new chief Mario Draghi is likely to hold fire on any interest rate cuts to douse the flames of the eurozone debt crisis at his first meeting Thursday, analysts say.
After only two days in office, it will probably be too early for Italy's Draghi, who took over at the helm of the ECB from Jean-Claude Trichet, to announce a reduction in borrowing costs to prop up the ailing eurozone economy.
Instead, markets will be waiting to see what he says about the latest developments in the debt crisis and the ECB's controversial bond-buying programme before he flies off to Cannes to attend a meeting of G20 leaders.
"The ECB could play a key role in calming markets, ending the debt crisis and stimulating flagging growth," Berenberg Bank senior economist Christian Schulz said.
A swift cut in interest rates "could help keep the likely recession brief and mild" and large-scale bond-buying would help defend debt-wracked countries against irrational market panic.
"Unfortunately, as Draghi takes over, neither a rate cut nor determined bond purchases are likely," Schulz said.
The state of the economy in the single currency area was not yet critical enough and Germany, for one, was strongly opposed to further intervention in the sovereign bond markets.
Draghi was therefore likely "to play it safe at his first press conference, making no new announcements or bold statements, while at the same time leaving the options open and signalling awareness of the problems," the analyst said.
The 64-year-old Italian's first few days as ECB president have certainly been a baptism of fire.
The 17-nation eurozone is back in deep crisis following the shock call by Greece for a national referendum on a debt rescue reached with huge difficulty only last week.
The announcement rocked global stock markets and angered leaders across Europe.
Italy saw its borrowing rates soar as a possible 'No' vote in the referendum would make it even more difficult for Premier Silvio Berlusconi to stave off contagion from the debt crisis.
Amid the havoc, many people see the ECB as the only institution in the single currency area with the firepower to calm the debt tensions, but analysts do not believe it will resort to cutting rates just yet.
UniCredit chief eurozone economist Marco Valli said he expected Draghi to leave eurozone interest rates at 1.50 percent, possibly for some time.
"Many in the market are betting on a December rate cut and Draghi's words will be closely scrutinised to debate whether the 'new' ECB wants to validate these expectations," Valli said.
But Valli said he was not convinced and believed the central bank would resist pressure to cut rates in the coming months.
Cedric Thellier, eurozone economist at Natixis, similarly believed that Draghi would "not explicitly announce a rate cut for next month," even if he would not rule a move out completely, depending on the new ECB staff macroeconomic projections for 2012.
"We favour a scenario with a quarter-point rate cut, if not in December then probably in January," followed by a second move the following month, Thellier said.
By contrast, RBS economist Nick Matthews said the fact that it was Draghi's first meeting as ECB president "is not an insurmountable hurdle to a rate cut."
In fact, a move "could actually be viewed positively and build confidence in the new president as someone who is not afraid of personal criticism nor willing to cave in to political pressure not to look dovish in his first meeting," Matthews suggested.
The analyst said he was pencilling in a quarter-point reduction in borrowing costs to 1.25 percent "rolling into December, if it fails to materialise this week."
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