While a large majority said the Governing Council will hold the main refinancing rate at a record low 0.75% at its Thursday meeting, there was no consensus over its next move, reflecting a similar split among policymakers themselves.
A wafer-thin majority — 38 out of 73 analysts polled over the last few days — said the ECB will remain on hold for the next three months. The majority shifts to a 25 basis point cut by the end of June, but by a margin of only one respondent.
There are two schools of thought.
In one are those who point to poor economic data for the fourth quarter that signal a deepening eurozone recession. They argue that this warrants another cut, no matter how limited its effect may be as rates are already near zero.
With the sovereign debt crisis festering, there are few signs of an early turnaround for the eurozone economy, although surveys last week suggested the recession may at least have passed its nadir.
On the other side are those who say ECB president Mario Draghi has shown no inclination to repeat last July’s rate cut. Instead he seems to be waiting for the results of the bank’s programme to buy the bonds of troubled eurozone governments — which has yet to even start.
That means the most likely outcome is that the ECB stays on the sidelines.
“The council’s divided, the outlook’s uncertain,” said Alan Clarke, economist at Scotiabank.
However, he said policymakers usually reach consensus rapidly once the economic outlook becomes clearer. “It doesn’t unduly disturb me there’s a split, because as the eurozone’s demonstrated in the last year or two, things can change just like that.”
The eurozone economy has shrunk for three consecutive quarters, with GDP down 0.6% year-on-year in June-September.
Disagreement among the forecasters merely reflects the split among the ECB’s own policymakers. Board member Yves Mersch was quoted last month as expressing his opposition to cutting the refi rate further.
Eurozone inflation held steady at 2.2% in December despite expectations of a fall, only a little above the ECB’s target ceiling of 2%.