No consensus on whether ECB will cut rates next year: Reuters poll

Wed Nov 28, 2012 9:56am EST
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By Andy Bruce

LONDON (Reuters) - 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. <ECILT/EU>

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."   Continued...

The Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt November 6, 2012. REUTERS/Lisi Niesner