The chart that's pushing Draghi to act

The European Central Bank (ECB) published further data Wednesday that shows a continued reluctance by banks to lend cash to businesses -- statistics that could prompt its governing council to act next week.

Annual growth in M3 – the general measure of cash in the economy - has barely flickered above 1 percent in recent months. During the boom times of 2007 it was closer to 12 percent. The latest figures showed that annual growth rate decreased to 0.8 percent in April, from 1 percent in March. This is far below the ECB's old reference rate of 4.5 percent.

Source: European Central Bank
Source: European Central Bank

ECB President Mario Draghi warned on Monday that credit constraints were putting a brake on the recovery in stressed countries. Banks still rebalancing after the sovereign debt crisis have shown little interest in lending to the wider economy, curbing investment and wage growth.

"Another soft report," Claus Vistesen, an economist at Pantheon Macroeconomics, said of the latest figures. He said in a research note he believes the message is getting more negative for Draghi.

Read More ECB prepared to act on inflation risks: Draghi

"The drop in M3 growth to below 1 percent year-over-year probably means that the central bank is losing patience fast," he said. "The likelihood of the ECB acting next week to spur credit demand has increased."

Draghi has been increasingly vocal about the policy tools available to him when the governing council meets next week. A speech he delivered in Portugal on Monday left some analysts with the belief that he would go further than a cut in interest rates and would pump liquidity into the economy via some sort of refinancing plan.

Mario Draghi, President of the European Central Bank
Sean Gallup I Getty Images
Mario Draghi, President of the European Central Bank

ECB Executive Board Member Yves Mersch was quoted by Reuters Wednesday saying that the bank could launch a combination of policies but that the timing of the implementation could vary.

Draghi's increased focus on credit means that the probability of a bank lending measure has increased, according to Pernille Bomholdt Nielsen, an analyst at Danske Bank.

Read MoreEuro rise 'cause for serious concern': Draghi

"The ECB's preferred bank lending instrument will be a targeted LTRO (long-term refinancing plan). The ECB is likely to be inspired by the Bank of England's Funding for Lending Scheme," she said in a research note on Wednesday.

Judging from his speech on Monday, Draghi seems to be currently mulling over which sort of credit easing to launch. While he may opt for LTROs, analysts also warn that these loans end up on banks' balance sheets and would therefore be less effective if lenders are increasingly fearful of being undercapitalized, especially with banking stress tests taking place.

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Pimco also said on Wednesday the ECB was likely to provide further LTROs to banks in the short term, which could be conditional on them boosting loans to small and mid-size businesses.

It also forecast the ECB would lower its main interest rate even closer to zero percent, as well as the rate on its deposit facility to negative levels in the short term, though not necessarily as soon as next week. The deposit rate is already at zero percent and negative rates would mean that banks would effectively have to pay to park money with the ECB.

On the other hand, Draghi could use off-balance sheet purchases of asset-backed securities. This is a more direct route but would leave a greater credit risk for the central bank. Frederik Ducrozet, the senior euro zone economist at Credit Agricole, believes that the ECB could announce an open-ended private QE (quantitative easing) program like this in June and define the operational details at a later date.

"Communication will be an important part of the June 'package'. We expect Draghi to leave the door open to unconventional action in case inflation fails to pick up by year-end," he said in a research note released on Tuesday.

Inside Draghi's toolbox: What's his next move?
Inside Draghi's toolbox: What's his next move?   

Andrew Balls, the deputy chief investment officer of Pimco, saw a stronger-than-50-percent possibility the ECB would opt for QE at some point. But he forecast it would purchase government bonds rather than operate an "impractical" private program.

"If the ECB takes its inflation target seriously, it seems there is a pretty good chance of QE," said Balls at a news briefing on Wednesday.

Annual inflation in the 18-member euro zone picked up slightly in April to 0.7 percent, but remained way off the ECB's target of close to 2 percent.

Pimco forecasts inflation will average only 1.5 percent over the next three to five years.