The European Central Bank kept interest rates at 2.0 percent on Thursday after four months of cuts, but analysts expect the post-decision news conference to all but guarantee further easing in the next few months.
The decision had been widely expected, as ECB President Jean-Claude Trichet virtually ruled out a cut after the last rates meeting when he said the next important "rendezvous" for monetary policy would be in March.
The freeze halts the most aggressive series of ECB rate cuts in history, which slashed benchmark credit costs by 225 basis points from October's peak of 4.25 percent.
However, with the euro zone economy falling deeper into recession by the week and signs that inflation is heading to worryingly low levels, economists are sure it is just a pause.
Financial markets were little changed after the decision as attention turned to Trichet's news conference, beginning at 1330 GMT.
"This was very much expected but the press conference will probably see Trichet highlight that they are going to cut rates again in March," said Citi economist Juergen Michels.
"He will probably suggest that recent data on economic activity supports this and will probably say something like the next meeting is an important 'rendezvous', therefore leaving the door wide open for a cut."
All but three of 85 economists polled by Reuters had expected the ECB to leave rates unchanged this time around. The majority expect the central bank to resume the easing cycle next month with another 50 basis points cut.
But they are also braced for any hint from Trichet that the ECB may slow the pace of future easing. "They have not really given any clear information which would confirm either 25 or 50 basis points; we just know that it's reasonable to expect rate cuts," said Nomura economist Laurent Bilke, who sees the ECB returning to smaller, 25-point moves.
Trichet's comments will also be scoured for signals on how low the ECB rates will go. Central banks including the U.S. Federal Reserve, the Swiss National Bank and the Bank of Japan have already reduced credit costs below 1 percent. The Bank of England cut British rates to 1.0 percent earlier on Thursday.
Trichet and other ECB policymakers including Yves Mersch and George Provopoulos have cautioned against very low euro zone rates, but Cyprus central bank governor Athanasios Orphanides has exposed a difference of views on the Governing Council, saying rates should be cut hard and fast.
SPLIT ON ZERO
Orphanides created a stir by saying it was a fallacy that policy becomes ineffective when rates hit zero, and that central banks should not be shy of cutting rates aggressively to stave off economic shocks..
Central banks throughout the world are turning to or contemplating non-conventional measures or quantitative easing, such as asset purchases, to keep credit flowing as they run out of scope to lower benchmark interest rates any further.
UniCredit economist Marco Annunziata said the difference of views at the ECB meant that moulding and communicating a view on future policy options — including following other central banks into direct asset purchases — was a priority for the Governing Council.
"Attention will be firmly focused on whether the ECB has made any progress towards devising a quantitative easing strategy, and Trichet will need to clarify the extent to which the Governing Council agrees on the desirability and feasibility of such a strategy," he said in a note to clients.
Median expectations in the Reuters poll are for ECB rates to bottom at 1.0 percent in the second quarter as the economy contracts and inflation falls further below the ECB's medium-term goal of below, but close to 2 percent.
Euro zone producer prices dropped more than expected in December while consumer price inflation in the 16-nation region dropped to a 10-year low of 1.1 percent in January.
Prices could even be falling come the middle of the year according to many analysts, although policymakers have dismissed the odds of serious deflation. Meanwhile, despite glimmers of hope in some data, economic sentiment is at a record low and unemployment is rising, with the bleak outlook dragging down the euro.
