ECB to hold rates, guidance for 2013 eyed

Tue Dec 4, 2012 6:53am EST
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By Eva Kuehnen

FRANKFURT (Reuters) - 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."   Continued...

A man passes by a newspaper featuring the Euro currency sign in central Athens November 21, 2012. REUTERS/John Kolesidis