ECB to hold rates in February but cut them in March

By Nigel Davies

LONDON (Reuters) - The European Central Bank is widely expected to take a break in its rate cutting cycle in February, but be back in action in March as both growth and inflation slide to new lows, a Reuters poll showed.

ECB President Jean-Claude Trichet left economists in little doubt the bank would pause next month when he reiterated his remark from the January press conference in Davos on Wednesday that the bank's next important meeting will be in March.

Eighty-two of 85 economists in a poll taken January 27-29 said the ECB would leave rates on hold at a low of 2.0 percent when it meets on February 5, with three not taking Trichet's hint and forecasting a cut.

But a fall in inflation well below the ECB's ceiling of just below 2 percent last month, weak growth prospects, and policymaker comments as to the future path of interest rates were enough to convince 82 of 85 that the bank will cut in March.

Two said rates would be left on hold at 2.0 percent where they are currently and one economist said there would be a cut in February but no further move.

The majority said the bank will cut rates by 50 basis points in March to a historic low of 1.5 percent. And despite ECB warnings that rates are not likely to fall too much further, medians showed rates bottoming at 1.0 percent in the second quarter, compared with the third quarter in a poll on January 21.

"President Trichet's rhetoric at the January press conference left little doubt that the ECB is keen to pause," said Kenneth Broux, economist at Lloyds.

"The reprieve will be temporary and a rate cut to 1.50 percent is on the cards in March as the ECB catches up with the bleak growth and benign inflation outlook in its updated staff projections," he added.