(Fixes spelling in fourth paragraph)
* ECB seen keeping rates unchanged at August meeting
* Draghi expected to highlight risks from Ukraine conflict
* ECB awaiting impact of lower rates, TLTROs
* Draghi expected to reiterate ECB's dovish stance
* Rate decision at 1145 GMT, news conference at 1230 GMT
By Eva Taylor
FRANKFURT, Aug 7 The European Central Bank is
set to hold fire on rates on Thursday as it waits for earlier
stimulus measures to gain traction, while keeping an eye on
emerging risks from the conflict in Ukraine.
The ECB cut interest rates to record lows in June, became
the first major central bank to charge banks for holding their
deposits overnight and launched a new ultra-cheap, four-year
loan programme, dubbed TLTROs, to be rolled out later this year.
"After the fireworks in June, it is not the time to take
fresh measures because the ECB wants to wait and see how things
develop," said Reinhard Cluse, economist at UBS. "The ECB wants
to keep its powder dry."
None of the 64 economists in a Reuters poll expect any
change to the refinancing or deposit rates when the Governing
Council meets on Thursday.
ECB President Mario Draghi is likely to put more emphasis on
the geopolitical risks to the euro zone growth outlook after the
European Union stepped up sanctions against Russia for its role
in Ukraine's political crisis, which has already hit confidence.
Although all but two of 36 economists in a separate poll
said there was a low risk of any negative impact on the euro
zone economy from the U.S. and EU sanctions on Russia, they come
at a time when key countries are struggling to return to growth.
Italy, the euro zone's third largest economy, slipped back
into recession in the second quarter. Prime Minister Matteo
Renzi has led calls to move from austerity to looser EU budget
rules, but has been rebuffed by Germany, Europe's economic
powerhouse, and some others.
In France, the region's second biggest economy which is also
struggling, President Francois Hollande said the ECB and Germany
must do more to boost growth and fight a "real deflationary
risk" in Europe.
Against the backdrop of this debate, Draghi held talks with
incoming European Commission chief Jean-Claude Juncker on
"DONE WITH EASING"
Euro zone annual inflation hit 0.4 percent in July, the
lowest since October 2009, though much was down to a sharp fall
in volatile energy prices. UBS sees inflation picking up slowly
from here, reaching 0.8 percent towards the end of the year.
Low price pressures in the euro zone are also a result of
reforms in some countries to regain competitiveness that include
wage cuts and restrained government spending, which the ECB does
not want to undermine.
The central bank has also taken heart from looser bank
lending standards, indications of a pick-up in credit demand
going forward and a weaker euro exchange rate, which hit
a nine-month low against the dollar on Wednesday.
If, however, inflation remains stuck at low levels for too
long and if inflation expectations start to deteriorate, the ECB
says it stands ready to act, possibly with large-scale asset
purchases, which are also known as quantitative easing.
"President Draghi is likely to reiterate the ECB's dovish
stance, leaving forward guidance unchanged with the option to do
more in the future (including QE)," said Frederik Ducrozet,
senior economist at Credit Agricole CIB.
"But our baseline remains that the ECB is done with easing
at this point."
(Editing by Gareth Jones)