The ECB will not budge on interest rates until late next year at the earliest and while leaving its inflation projections unchanged, its 2010 growth forecasts will be ramped up, a Reuters poll showed. None of the 78 economists polled this week said the ECB would change interest rates from a record low of 1.0 percent when it meets on Sept. 2 and medians suggest the first move up to 1.25 percent won't be until the last months of 2011. That is later than the consensus for a rise in the third quarter of next year seen in a Reuters poll taken just two weeks ago. Worries about a global slowdown continue to weigh on policymakers' minds despite strength in Germany. "The multiple headwinds to growth and the prospect of very low core inflation for some time to come suggest that the refinancing rate will be staying at 1 percent for a considerable period of time," said Ken Wattret at BNP Paribas.
While data released earlier this month showed the 16-nation euro zone's economy grew 1.0 percent in the second quarter -- its fastest pace in more than three years and outpacing growth in the United States - growth is seen slowing to 0.3 percent in coming quarters. Worryingly for policymakers, some indicators show there is a growing divergence in pace of recovery in the bloc with growth in Germany and France far outstripping lacklustre numbers from Spain and Italy. "The contrast of very strong growth in northern Europe and the disaster of southern Europe will cause the ECB a very real problem in 2011," said Azad Zangana at Schroders. "Tightening policy before southern Europe is ready could risk a break-up of the union, while tightening too late for northern Europe could lead to inflation pressures mounting in Germany and France."
The majority of economists said the central bank would leave its staff projections for inflation this year and next unchanged at between 1.4 and 1.6 percent and 1.0 to 2.2 percent respectively. While economists were convinced that the ECB would raise its 2010 growth forecast range of 0.7 to 1.3 percent -- with 45 of 46 saying they would -- they were more divided over what the bank would project for 2011. Twenty said the bank would revise up its 0.2 to 2.2 percent 2011 forecasts while 22 said they would be left unchanged. Four said the forecasts would be revised down. A Reuters poll taken earlier this month predicted growth of 1.2 percent this year and 1.4 percent in 2011.