Published November 28, 2012
LONDON – Whether the state of the euro zone economy will force the European Central Bank to cut its main interest rate to a new record low has economists more divided than ever, a Reuters poll showed on Wednesday
While only a handful of the 71 economists polled this week said the ECB will trim its main rate from 0.75 percent to 0.5 percent next Thursday, they were split down middle over the possibility of a rate cut early next year.
The findings were little changed from a poll two weeks ago.
There are two schools of thought. On one side are those who point to the raft of poor economic data for this quarter that signal a deepening recession, warranting another interest cut, no matter how small its impact might be.
And with the sovereign debt crisis still festering, there are few signs of an imminent turnaround for the euro zone economy. Most point to a worsening recession.
On the other side are those who say ECB President Mario Draghi has shown no inclination to ease monetary policy again, and is instead waiting to see how its bond-buying program - called Outright Monetary Transactions (OMT) - fares.
"The ECB has made clear that its policy is already very accommodative. Going forward, it puts most emphasis on improving the financial environment with the help of its OMT program," said Kristian Toedtmann, economist at DekaBank.
"Therefore, a further rate cut is less likely. A rate cut would only have major effects if the ECB also reduces the deposit rate, so that it becomes negative. At the moment, the ECB doesn't seem willing to do so."
Draghi declined to comment after the November policy meeting on whether markets were right to expect a rate cut next month, saying only that monetary policy was "very accommodative".
He also said the policymaking Governing Council had not discussed what it would do next year.
Thirty-four out of 71 economists forecast a rate cut by the end of the first quarter next year, turning to 36 by the end of the second quarter.
Those who said the ECB will ease policy again soon also cited easing inflation, which fell to 2.5 percent in October from 2.6 percent in September. Preliminary data for November due on Friday are expected to show another fall to 2.4 percent.
"We expect the ECB to cut interest rates further, as it is likely to become more obvious to the General Council inflation will undershoot the target of close, but below 2 percent in the medium term," said Juergen Michels, economist at Citi.
He expects the main refinancing rate will be trimmed to 0.5 percent in the first quarter of 2013, followed again by a cut to 0.25 percent in the second quarter, in combination with the deposit rate turning negative in mid-2013.
The ECB will also publish its latest staff forecasts for the euro zone economy at next Thursday's meeting.
A strong majority of economists - 34 out of 37 - said the ECB would chop its outlook for economic growth in 2013.
(Reporting by Andy Bruce)