FRANKFURT – The European Central Bank may give a guide to next year's policy path when it delivers fresh forecasts for the euro zone economy on Thursday at a meeting where it is expected to leave interest rates at a record low.
The ECB will issue its first economic forecasts for 2014 in its staff projections and economists expect the bank to downgrade its outlook for 2013, following a similar move by the European Commission in November.
Only a handful of the 71 economists polled by Reuters said the ECB would cut rates and they were split down the middle over the possibility of a rate cut early next year.
The Governing Council will also discuss the latest agreement by Greece's international lenders, which include the ECB, to bring the country's debt down to more manageable levels to unlock funds Athens urgently needs to stay afloat.
The Greek deal, along with the ECB's promise to do whatever it takes to preserve the euro have calmed financial markets, bringing down borrowing costs in Italy and Spain.
ECB chief Mario Draghi has pledged to buy the bonds of struggling euro zone government bonds in potentially unlimited amounts, but only once they have sought help from the euro zone rescue fund.
Until they do, economists expect rates to be held at a record low of 0.75 percent. Recent comments from ECB policymakers suggest the bank is unlikely to make further cuts for now despite a dire economic outlook for the bloc.
The ECB is "unlikely to play Santa in December", said Juergen Michels, euro zone economist at Citi. "The ECB does not want to reduce market pressure further as this probably would lead to a further delay of Spain asking for assistance."
The ECB's contribution to the latest rescue efforts for Greece are likely to be high on Thursday's agenda.
Euro zone finance ministers agreed last week to return profits they receive via national central banks from bonds the ECB bought under its Securities Market Programme to Athens, reducing Greece's debt pile by 11 billion euros.
A euro zone central bank source told Reuters the Governing Council would also discuss a possible rollover of Greek debt held by some national central bank in their investment portfolios.
A document that emerged from last week's euro zone finance minister's meeting showed that such a step would save Greece the need to redeem 3.7 billion euros in 2012-2014 and 1.9 billion euros in 2015-2016.
Asked whether the issue would be discussed on Thursday, the source said "definitely".
While it was up to the individual national central banks to decide to replace the Greek bonds they hold with new Greek paper as the debt matures, the Governing Council would likely agree on a common line on Thursday, the source said.
The ECB declined to comment.
It will have to chose its wording on the matter carefully to avoid giving the impression its central banks were directly financing governments, something EU law prohibits.
Draghi hinted at a downward revision of the ECB staff projections at last month's news conference and said last week that the euro zone's debt troubles were likely to stretch deep into next year.
The debt crisis dragged the currency bloc into its second recession since 2009 in the third quarter and business surveys show little signs of a turnaround. The euro zone's manufacturing sector shrank for a 16th straight month in November, though a little less rapidly than in October.
Euro zone inflation fell to 2.2 percent in November, moving closer to the ECB's target of below, but close to 2 percent over the medium term, prompting some economists to pencil in a 25 basis point rate cut by the end of the first quarter next year.
Royal Bank of Scotland economist Richard Barwell said he saw little merit in cutting the main refinancing rate without a corresponding cut in the deposit rate -- which banks get for parking their funds at the ECB overnight, currently at zero.
This would mean that the ECB would charge banks to hold their money, which might push them into lending and away from hoarding their cash.
ECB Governing Council member Christian Noyer did not rule out such a step earlier this week, but said it was not an issue at the moment.
The ECB is also likely to extend the supply of unlimited funds for euro zone banks in its refinancing operations, which runs out on January 15.
(Editing by Mike Peacock)