Rates may be cut again

The eurozone’s deepening economic turmoil will likely force the ECB to cut its main policy interest rate to a new record low by the year’s end, a Reuters poll has showed, marking a decisive shift in the consensus view.

Just two weeks ago, economists predicted the ECB’s main refinancing rate would stay on hold at 0.75% right through to 2014.

Since then, renewed alarm about Spanish and Greek government finances, plus some poor economic data, prompted many of the survey’s 70 economists to expect the ECB to ease monetary policy again well before then.

While only seven expect the central bank will cut the ‘refi’ rate by 25 basis points for a second month in a row in August, the poll showed a clear majority — 44 out of 69 — expect it will do so before 2013.

“The economic case for a further loosening of the conventional policy stance is compelling,” said Ken Wattret, chief eurozone economist at BNP Paribas, speaking of next week’s ECB meeting.

“But with so little conventional ammunition left, the ECB will probably want more time to assess the situation.”

Wattret said he expected the next cut in September, in tandem with the next round of ECB economic projections.

That would bring the ECB closer in line with the near-zero interest rate policies of the Bank of Japan and US Federal Reserve.

Last month, the ECB cut the ‘refi’ rate by 25 basis points as expected and also trimmed its deposit rate to zero.

Reuters