Portugal Colonial - ECB set to hold rates but debate swirls over future

Following a year-long series of cuts, the central bank for the 20 countries that use the euro has kept its key deposit rate on hold at two percent since July.

Inflation has settled around the central bank's two-percent target in recent months and Europe has weathered US President Donald Trump's tariff onslaught better than initially feared, leaving little pressure for rates to move imminently.

"There won't be a big surprise under the ECB Christmas tree," Berenberg bank economist Felix Schmidt told AFP. "Inflation is under control, growth is okay."

With the hold likely a done deal, investors will be paying close attention to ECB President Christine Lagarde's press conference from 1345 GMT for any hints on the path forward after Governing Council members gave conflicting signals.

Isabel Schnabel -- widely considered a hawk who is particularly wary of inflation -- fuelled expectations of possible rate-rises down the line after telling Bloomberg she was "rather comfortable" to see traders pencil in hikes.

- Uncertainty high -

But others, including Finland's Olli Rehn and France's Francois Villeroy de Galhau, have emphasised just how uncertain the inflation outlook is.

"The name of the game for our future meetings remains full optionality," Villeroy said at a Bank of France speech earlier this month. "We don't exclude any policy action."

Lagarde herself told the European Parliament in December that she saw "two-sided" risks when it came to inflation, adding that uncertainty "was higher than usual owing to volatile global trade policies".

While a stronger euro, cheaper energy and slowing wage growth would all be expected to hold inflation down, a resilient eurozone economy combined with the German government's spending bonanza coming online could see growth and inflation pick up pace.

With the path ahead uncertain, the ECB's updated growth and inflation projections published after the meeting will also be combed through by observers for any clues.

"Investors will be looking for any further hints that policymakers are getting more optimistic about the outlook," Capital Economics analyst Andrew Kenningham told AFP, adding that he nevertheless thought the eurozone economy was weak.

"We think the ECB is more likely to cut rates than to hike next year," he said.

E.Ramalho--PC