* ECB rates on hold
* China GDP growth seen at 6.7pct in Q3
* Canadian rates seen on hold longer than expected
By Balazs Koranyi
FRANKFURT, Oct 16 European Central Bank
President Mario Draghi will have a tricky task next Thursday:
give just enough clues about the bank's next move but not fuel
undue expectations that could perturb markets.
China will also be in spotlight in the coming week,
reporting third quarter GDP figures on Wednesday, with data
likely showing steady growth at 6.7 percent, as increased budget
spending and a property boom offset stubbornly weak exports.
The ECB is facing weak growth and super-low inflation, which
means Draghi will have to persuade investors that the ECB is
ready to pull the trigger on more stimulus at the same time that
he preserves an escape route since the bank has already done
unprecedented easing and its room to manoeuvre is limited.
The question to decide is whether to extend an 80-billion
euro per month asset purchase programme, due to run out in
March, or start dialling back stimulus.
It will be tough call as the hawks, including Germany, the
bloc's biggest economy, oppose any further easing. But a
decision is seen as premature as the euro zone economy is
humming along, giving Draghi some time refine options.
A Reuter poll on Thursday found economists expecting no
change in the coming week's meeting but a tweak of policy in
On the macro front, industrial production is rebounding,
confidence is holding up, government budgets may provide a touch
more stimulus next year and oil prices are nudging higher,
lifting up inflation prospects.
Draghi has already said that inflation could rise to ECB's
target of close to 2 percent by late 2018 or early 2019, an
unusually upbeat projection.
Yet the bank has warned that underlying price pressures
still lacked a convincing upward trend and its projections were
predicated on "very substantial" monetary support, signals
analysts said pointed to an extension of asset buys.
Technical constrains, such as low bond yields and asset
scarcity, have also eased in recent weeks, giving the ECB time
to adjust the asset buying scheme's parameters.
"Macro developments since the September meeting have not put
the ECB in a hurry to present additional monetary actions," ING
economist Carsten Brzeski said.
"The possible lack of sufficient supply for bond purchases
would only be a pressing issue at the beginning of next year,"
Brzeski said. "This means that addressing the scarcity problem
will, strictly speaking, only be required if and when the ECB is
definitely determined to extend quantitative easing beyond March
Still, markets expect asset buys to be extended by 6 months
by and see even more cheap funding for the bank sector,
decisions most likely to come in December.
The Chinese government has been battling to get its economy
back on steadier footing while gently pressing with painful and
politically sensitive reforms to cut industrial overcapacity and
Although growth has appeared to stabilise, economists warn
that it has become too reliant on government spending and a
housing market that is showing signs of overheating.
"The stabilisation in industrial production growth, the
upturn in the real estate market and monetary loosening could
help reduce pressures on corporates and local governments,"
Christine Peltier at BNP Paribas said.
"However, their solvency is not improving, their debt levels
have become even more excessive over the last year and their
capacity to service their debt remains weak," Peltier said. "In
this context, credit risks in the financial sector continue to
increase and the performance of commercial banks deteriorates
Debt is around 250 percent of gross domestic product and
excessive credit growth is signalling an increasing risk of a
banking crisis in the next three years, the Bank of
International Settlements warned recently.
Growth, falling to a 25-year low last year, is also expected
to ease further as foreign trade shrinks and the excessive
reliance on debt is bound to ease.
The Canadian economy meanwhile rebounded in the quarter,
giving the Bank of Canada some space to hold policy steady on
Still, with energy prices persistently low, global trade
generally weak, and U.S. demand relatively soft, Canadian rates
are likely to stay low for even longer than earlier thought.
(Editing by Jeremy Gaunt)