The ECB is expected to announce a 10bp cut of the deposit rate to -0.3%, a three-month extension of the QE program to December 2016, and an increase in the monthly pace of purchases by €10 billion to €70 billion per month. The risk is skewed toward more easing, partly because the ECB will not want to disappointment financial markets. This week's report on Reuters suggests that it could do this by cutting the deposit rate by more than 10bp, whilst trying to buffer some of the impact on banks via a tiered deposit rate. 

"We are not convinced that a tiered rate is necessary, mainly because the "tax" aspect of negative rates is not huge, because the "tax" cannot be reduced to zero without making the deposit rate ineffective and because it would make the system more complex", notes J.P. Morgan Research.

But, it may be easier for the ECB to deliver a larger deposit rate cut in a tiered way. Whatever the ECB announces, it will have an excellent opportunity to reinforce the commitment to its inflation goal and to emphasize that its policy actions should be seen as open-ended. Hence, the rhetoric around next week's announcements will be important. 

Even though there is a good case for the ECB to ease, it has been hard to understand the Bank's exact motivation. One possibility is that the ECB correctly calibrated QE in the spring and is now responding to changed circumstances. Even though the contemporaneous data have not disappointed, medium-term headwinds from EM have increased. Hence, the ECB may now be responding to forecast changes made by its staff in September and to downside risks to this. In fact, only marginal further changes are expected to the staff forecasts. 

A second possibility is that the ECB had not correctly calibrated QE in the spring and that Draghi was just waiting for the right opportunity to do more. But, with growth holding up solidly and headline inflation set to increase very soon, Draghi may view next week's meeting as a good opportunity to do more. He was perhaps also never fully convinced of the staff's inflation forecasts and is now putting much larger emphasis on risks to inflation expectations and very marginal disappointments in the core inflation details to argue for further easing.