July 24, 2013 / 3:28 PM / 5 years ago

ECB done with rate cuts as economy shows signs of life

LONDON (Reuters) - The European Central Bank is probably done cutting interest rates but may still take other measures to stimulate an economy that may soon creep out of recession, according to a Reuters poll.

The survey of 70 economists was conducted before a business survey on Wednesday suggested the euro zone private sector grew this month for the first time since January 2012.

Only a quarter of respondents forecast a further cut to the ECB’s main refinancing rate, already at a record low 0.5 percent, while hardly anyone now thinks it will take its overnight deposit rate for banks below zero.

That was similar to last month’s poll and all but one of those surveyed expected the ECB to hold policy rates steady at its August meeting next Thursday.

“We expect to see a slow improvement in euro area sentiment indicators and macro data, which should support the Governing Council’s expectations that a recovery will materialise later this year,” said Frank Oland Hansen, senior economist at Danske Bank.

“The economic outlook should thus not trigger further rate cuts.”

But the ECB has other options to help nurture the economy back to growth by taking more steps to ease access to funding across the euro zone.

Out of 45 economists who answered an extra question, 21 said they expected the ECB to undertake more long-term refinancing operations - offering cheap loans to banks.

“Further ECB measures should concentrate on improving credit conditions in the peripheral (euro zone) countries,” said Kristian Toedtmann, economist at DekaBank.

“These measures could be targeted at the (asset-backed securities) market. But it is difficult to say what exactly the ECB could or will do.”

The central bank has already set up a taskforce with the European Investment Bank to explore how it will revitalise the ABS market to help small and mid-sized businesses (SMEs) to raise funds.

But views were mixed on whether that approach will do much.

A huge Euro logo is pictured past the headquarters of the European Central Bank (ECB) in Frankfurt, September 29, 2011. REUTERS/Ralph Orlowski

Nineteen economists said it would prove effective, while 14 said it would be ineffective and one thought very ineffective.

“The effects are better than none. By easing collateral rules for ABS the ECB is effectively cutting finance costs for illiquid market securities and for bank lenders channelling credit into SMEs,” said Lena Komileva, director of consultancy G+ Economics.

“But the effects are dwarfed by the pressure of bank capital requirements and recessionary conditions in real economies.”

Reporting by Andy Bruce; Editing by Ruth Pitchford

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