ECB's U-turn pushes rate hike further into 2011 - Reuters poll

LONDON (Reuters) - The European Central Bank's sudden U-turn last month by extending emergency measures sent a clear signal it will wait well into next year before hiking interest rates, a Reuters poll of economists showed.

Median forecasts from 79 economists suggested the ECB will put off hiking interest rates from their record low of 1.0 percent until the second quarter of 2011, from the first quarter as seen in a poll three weeks ago.

As recently as March, economists believed the euro zone's economy was improving enough to warrant a rate hike by the end of the year, but since then there has been growing alarm about the fiscal health of the bloc's members.

The ECB's surprise May 10 decision to counter this by launching into an asset buying programme it had long ruled out, while restarting long-term liquidity operations, kicked many forecasts for policy tightening into the long grass.

"While the central bankers are pursuing such a policy, one can hardly imagine them increasing its key rate," said Gernot Griebling at LBBW in Stuttgart.

"Given that it will take some time to retreat from such a policy, we expect no rate change until at least the second half of 2011."

Twelve respondents forecast no change to interest rates before the end of next year in the latest poll, compared to only two in May's survey.

Overall, economists saw just a median 15 percent chance of a rate hike before the end of this year, compared to 30 percent seen in an April poll. Not one expected a change to rates on June 10.

"The interest rate decision is not as interesting as the market reaction to Trichet's press conference," said Azad Zangana at Schroders in London.

At last month's post-meeting conference, ECB President Jean-Claude Trichet said the possibility of government bond purchases had not been discussed in May's policy meeting, only for the ECB to introduce the same policy a few days later.

"Let's see if Trichet can avoid shaking market confidence this time around," added Zangana.

A Reuters poll on the EU crisis from May 21 showed that 28 out of 34 economists thought the measures had caused at least some damage to the ECB's credibility.

SHORT ODDS

The latest poll showed a one-in-four chance that euro zone countries will coordinate a ban on naked short-selling similar to the one Germany introduced unilaterally last month, which shocked financial markets.

"France has already opposed introducing a ban, so without them on board a move on an EU-wide basis is highly unlikely to succeed," said Kenneth Broux at Lloyds Banking Group in London.

Other respondents said that Germany's ban, ostensibly designed to protect euro-denominated assets against speculation, was largely a political gesture towards a German public fiercely opposed to bailing out indebted euro zone states.

In Britain, outside of the euro zone but no less exposed to its problems, forecasters in Reuters' Bank of England poll also saw the UK central bank holding off interest rates hikes until next year.

The UK boasts one of the largest budget deficits as a percentage of GDP after Greece. Its monetary policy, like the euro zone's, will for some time be tailored to averting crisis rather than controlling the speed of recovery.

"Recent capital market stresses have reinforced our long-held views that we remain in an international leverage crisis," said Lena Komileva at Tullett Prebon.

"The primary role for the ECB and BoE now is to maintain financial stability and fight the deflationary forces of rising default risk."

The ECB and BoE now look distinctly out-of-kilter with other major Western central banks. On Tuesday, Canada became the first Group of Seven economy to hike interest rates, while Australia is already well into its policy tightening cycle.

(Polling by Bangalore Polling Unit, Editing by Toby Chopra)