ECB to face Greece questions, hold rates

All eyes will be on what the European Central Bank is willing to do to help Greece when it holds its monthly policy meeting on Thursday, with interest rates expected to stay on hold ahead of a major funding operation later this month. ECB President Mario Draghi may be tight-lipped on the matter, however, with the Greek situation still unresolved.

Markets will also be looking for hints on whether the ECB is ready to cut rates from 1.0 percent to new record lows in the coming months, or if some recent positive economic news has been enough to put the bank in a wait-and-see mode.While it is due to carry out a second low-interest, three-year loan operation later in February after a blockbuster 489 billion euro offering in December, the bank is expected to refrain from announcing new measures.

Francesco Papadia, a top ECB official, hinted on Wednesday that the central bank could wait, saying bank liquidity concerns had all but disappeared thanks to the ECB's December three-year loans, adding that he was tempted to declare 'mission accomplished'. Analysts also said the central bank could relax a bit. With unlimited central bank liquidity, the ECB has pushed overnight market rates well below its main refinancing rate and its deposit rate, currently at 0.25 percent, acts as a floor for money markets.

But with the threat of a Greek insolvency casting a long shadow across the euro zone, Draghi will not go as far as some economists and declare the crisis over, even if the worst does turn out to be in the rearview mirror. The risks have not disappeared and thus the ECB is seen revealing little about its plans regarding Greece and the 50 billion euros worth of Greek government debt it holds. Sources have told Reuters the ECB is divided over whether it should forgo its profits on the paper when private investors are pushed to accept a cut of about 70 percent in value.

Draghi will be asked about this, but he is unlikely to reveal anything more than last month, when he repeatedly dodged the question. Even if the central bankers agree on a course of action, they will want to wait until it is signed and sealed before revealing their part.