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ECB rate decision: No more bazookas?

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The European Central Bank (ECB) is not expected to launch any "bazookas" at its December meeting, according to analysts, but it could resort to a different stimulatory weapon.

Pressure on the ECB to act when it meets in Frankfurt on Thursday eased following higher-than-expected inflation data last week, analysts said. The annual rate of HICP (Harmonised Index of Consumer Prices) inflation rose to 0.9 percent in November, from 0.7 percent the month below.

It comes after October's surprisingly low data sparked concerns that the 17-country euro zone was heading for a period of deflation. It spurred the ECB to cut its refinancing rate to 0.25 percent from 0.50 percent at its November meeting.

(Read more: Euro zone gets manufacturing boost, France drags)

Investors awaiting ECB economic forecasts

"At this week's meeting, the ECB should reiterate its dovish tone but take no fresh actions," Societe Generale's Global Head of Economics Michala Marcussen said in a research note. "The ECB has several tools left, but short of a renewed crisis we do not expect to see a big bazooka delivered."

Indeed, with few expecting any big move by the ECB this Thursday, Marcussen said that instead, all eyes would be on the ECB's staff forecasts for both gross domestic product (GDP) growth and inflation, with 2015's projections being published for the first time.

She said the inflation forecast will likely to be lowered from 1.3 percent year-on-year for 2014 to closer to 1 percent, which is what Societe Generale expects. However she does not expect a change in the ECB's GDP forecast of 1 percent.

"We do, however, think this will remain an over-optimistic forecast; our own is 0.6 percent," she added.

Bumpy ride

Despite positive inflation figures, some concerns about the strength of the euro zone's economic recovery remain.

(Read more: As you were? Europe deflation fears despite upbeat data)

On Wednesday, euro zone purchasing managers' surveys for November revealed that the region's recovery lost further momentum in November, and highlighted the differing fortunes of some of the euro zone's largest economies.

Meanwhile last week, a European Commission survey revealed that business morale in the region had increased to its strongest level since August 2011, but consumer confidence slipped back.

Negative deposit rate is a possibility: ECB's Coeure

This mixed picture comes after the region pulled out of an 18-month stretch of negative growth in the second quarter of 2013, posting growth of 0.3 percent. But data published earlier this month revealed that the euro zone's GDP slowed in the third quarter, coming in at just 0.1 percent quarter-on-quarter.

"Of course, the ECB is unlikely to respond to all of this by loosening monetary policy again so soon after November's rate cut," Capital Economics' Chief European Economist Jonathan Loynes conceded in a research note.

"Nonetheless, Mr Draghi will no doubt want to re-affirm his previous assertions that the central bank has not run out of policy ammunition."

Other tools

Indeed, since the last monetary policy meeting, focus has shifted to other potential tools available to the ECB, such as those aimed at improving liquidity conditions for banks.

(Read more: Eurozone business morale hits 27-month high)

These could come in the form of more "long-term refinancing operations" (LTROs) or even "very long-term refinancing operations" (V-LTRO), which see the central bank lend money at a very low interest rate to euro zone banks, in an effort to boost lending to businesses and consumers.

ECB President Mario Draghi has repeatedly stated that the central bank is willing to issue more LTROs if needed.

Loynes said: "We certainly would not be shocked if the ECB announced additional three year long-term refinancing operations (LTROs) at December's meeting." He added that these LTROs could be conditional upon promises from banks to use the funds to expand their lending activities.

"This would prevent healthy banks from taking advantage of the cheap funds to buy government bonds and might help to address the acute weakness of bank lending," he said.

But Howard Archer, chief U.K. and European economist at IHS Global Insight, added: "While we would not rule out an LTRO being announced on 5 December, we believe it is more likely to occur early in 2014."

(Read more: Is the euro zone already running out of good news?)

Societe Generale's Marcussen and Credit Agricole's Senior Euro Zone Economist Frederik Ducrozet agreed, stating that although a new LTROs was expected at some point, it was more likely to be introduced in early 2014 than in December.

The risks of deflation would have to intensify significantly for the ECB to resort to tools beyond LTROs, such as negative deposit rates, according to Marcussen.

Negative Rates?

As such, despite wide market speculation about the introduction of negative deposit rates – which see banks in the euro zone charged for depositing cash at the ECB – the move looks unlikely to be announced this week.

"It is possible that the ECB will eventually go down the negative deposit interest rate route but we suspect they would prefer not to and will only do so if inflation falls appreciably further," Archer said in a note.

While Credit Agricole's Ducrozet described negative rates as a "thorny question," but said it could be hinted at on Thursday.

It comes after ECB executive board member Benoit Coeure last week echoed comments by Draghi about negative deposit rates. In an exclusive interview with CNBC he said that negative rates had been "technically investigated, legally investigated," adding that it was only one instrument in the ECB's policy tool box.

By CNBC's Katrina Bishop. Follow her on Twitter @KatrinaBishop and Google