POLL-ECB rate cuts still seen in '08 despite hawkish talk

By Nigel Davies

LONDON (Reuters) - Euro zone interest rates are likely to fall twice in the second half this year and analysts believe sluggish economic growth will force the European Central Bank to ease its anti-inflation stance, a Reuters poll showed.

But economists' expectations of cuts this year are slipping as ECB policymakers offer no sign of wanting to lower rates as long as inflation remains at disturbingly high levels.

All 83 analysts in the poll, carried out April 28-30, predicted the ECB would leave rates at 4.0 percent for an 11th month running at its monthly policy meeting on May 8.

But they forecast two 25 basis point cuts in the second half, taking the main rate to 3.5 percent by December. However, expectations for the first move down in the third quarter are on a knife's edge.

Analysts have pushed back the timing of cuts, slowly catching up with financial markets which no longer expect any move this year. Only two economists now forecast a cut by June, compared with 29 of 80 in a poll at the start of this month.

Chances of a cut by September are also dwindling. Forty-four of 82 now see at least one cut by then, compared with 56 of 80 in the April 2 poll. December looks a safer bet, with 64 of 82 seeing rates lower by that time and in line with 65 of 80 in the earlier poll.

"In six months' time euro zone growth will look a lot different and there will be scope for the ECB to balance its concerns about the pass-through effects of commodity prices with growth below trend," said Lena Komileva at Tullett Prebon, who forecast one cut by the year-end.

In the poll the analysts gave only a 15 percent chance of a cut by the end of June, down from 30 percent in the April 2 poll, and a 70 percent chance of a move by the year-end, slightly lower than the 75 percent given earlier this month.