The euro zone's deepening economic turmoil will likely force the European Central Bank to cut its main policy interest rate to a new record low by the year's end, a Reuters poll showed, marking a decisive shift in the consensus view.
Just two weeks ago, economists predicted the ECB's main refinancing rate would stay on hold at 0.75 percent right through to 2014.
Since then, renewed alarm about Spanish and Greek government finances, plus some poor economic data, prompted many of the survey's 70 economists to expect the ECB to ease monetary policy again well before then.
While only seven expect the central bank will cut the refi rate by 25 basis points for a second month in a row in August, the poll showed a clear majority – 44 out of 69 – expect it will do so before 2013.
"The economic case for a further loosening of the conventional policy stance is compelling," said Ken Wattret, chief euro zone economist at BNP Paribas, speaking of next week's ECB meeting.
"But with so little conventional ammunition left, the ECB will probably want more time to assess the situation."
Wattret said he expected the next cut in September, in tandem with the next round of ECB economic projections.
That would bring the ECB closer in line with the near-zero interest rate policies of the Bank of Japan and U.S. Federal Reserve.
Last month, the ECB cut the refi rate by 25 basis points as expected and also trimmed its deposit rate to zero. It steered clear of more dramatic measures such as buying government bonds.
Most forecasts in the latest Reuters poll were based on the assumption the euro zone's debt crisis would not unravel into the sort of systemic crisis that swept the world in late 2008, when the banking system almost collapsed.
Spain's borrowing costs have soared over the last two weeks to levels that analysts say cannot be sustained for much longer, with fears rising Madrid will need a full sovereign bailout the euro zone can barely afford.
Indeed, regional debt, soaring borrowing costs, a higher deficit and souring market sentiment are all making it nearly impossible for Spain to find the 50 billion euros in funding it needs by year end without external aid.
European Union officials on Tuesday revealed Greece has little hope of meeting the terms of its international bailout, casting more doubt on its future in the euro zone.
Unsurprisingly, there was a palpable sense of uncertainty among respondents. Asked whether the rate cut would come by the end of this quarter, forecasters were split: 36 said yes, 33 said later.
But 44 said a rate cut would come by the end of the year.
Among the survey's outliers, two predicted the ECB eventually will cut interest rates even further, to 0.25 percent next year, one based on a forecast that Greece will leave the euro zone next year.
Conversely two respondents, including senior Berenberg Bank economist Christian Schulz, thought the ECB would start hiking rates next year.
"This is not aggressive tightening, this is normalising – it is a slow exit from very expansive strategy," said Schulz said.
"We have said this all along – that as soon as the crisis is under control, economic growth returns slowly and ECB will also slowly normalise policy."
Economists reckon the euro zone has sunk back into its second recession since 2009. Business surveys this week suggested the economy is shrinking at a quarterly rate of 0.6 percent – far worse than suggested in a Reuters poll taken two weeks ago.
