By Nigel Davies
LONDON, Dec 2 (Reuters) - Economists still expect the European Central Bank to cut interest rates by only 50 basis points on Thursday, despite a stream of poor economic data and a sharp drop in inflation.
The Bank of England is forecast to make a move double this size on the same day, and financial markets have fully priced in a 75 basis point cut by the ECB, according to EONIA interest rate contracts.
However, calls made to large banks which had already forecast last week a 50 basis point reduction to 2.75 percent showed the majority sticking to that call.
Most believe the ECB will take a more gradual approach to cutting rates than other central banks, and only two of 15 contacted said they now forecast a larger cut.
A Reuters poll taken last week showed 24 of 81 economists forecast a cut of 75 basis points or more. The majority believed the ECB will cut rates by only 50 bps, with more cuts to come next year.
The lack of change to forecasts comes despite Australia's central bank slashing rates on Tuesday by 100 basis points, a move that is likely to be followed by the Bank of England when it meets on Thursday, say economists.
"Larger cuts than 50 basis points are warranted. There are plenty of reasons why the ECB should be moving by more, but the bank's rhetoric in recent weeks has argued against making a larger move," said Jacques Cailloux, chief euro area economist at RBS.
The ECB probably wanted to keep more ammunition so it could cut rates further in the next few months if needed, and probably did not want to shake markets by making an unexpected larger move, he said. The ECB could also propose other measures to aid market liquidity.
A much gloomier picture of the euro zone economy has emerged this week. A key index of the euro zone's manufacturing sector tumbled to a new low in November and economists expect data on Wednesday to confirm that the wider services economy is also mired in contraction.
Annual inflation has also fallen dramatically from a peak in the summer of 4.0 percent to 2.1 percent in November, only just above the ECB's target.
However, a few banks have made late changes to their forecasts, including JP Morgan, which now predicts a 75 basis point cut.
"We had already expected the ECB policy rate to reach 1 percent next summer," JP Morgan analysts wrote in a note. "We are leaving that level unchanged but accelerating the trajectory -- we now expect a 75 basis point cut and the 1 percent rate to be reached by next spring."
The euro zone economy is already in recession and the ECB will update its own staff forecasts of GDP and inflation this week. Both are set to fall, paving the way for more cuts.
(Polling by Bangalore Polling Unit; Editing by David Stamp)