(Adds detail, market pricing)
By Krista Hughes and Marc Jones
FRANKFURT, Feb 5 (Reuters) - The European Central Bank signalled on Thursday that it will probably cut interest rates again in March after a pause this month, bolstering expectations that euro zone rates are headed for a record low of 1.5 percent.
ECB President Jean-Claude Trichet said he did not exclude the the Governing Council lowering rates from the current 2.0 percent at its next policy meeting, when policymakers will have new data and staff forecasts on the troubled euro zone economy.
"We confirm that 2 percent is not the lowest level," he told a news conference after the ECB kept rates unchanged at its February policy meeting, following four cuts since October. "I don't exclude that we could decrease rates at our next meeting."
Quizzed repeatedly about the size of the next cut, Trichet told reporters that he had "absolutely nothing" to say.
But he noted that financial markets were already betting on a further 50 basis point easing, which some saw as a hint the ECB will keep cutting at a steady pace rather than slowing the pace as rates head into uncharted territory.
Asked about the chances of a 50 or a 25 point cut in March, Trichet said: "We are not embarking on qualifying the amplitude, but I have noted that what is at the moment, as we speak, present in the market would probably be more the first figure that you have mentioned. But I don't qualify that what is presently embedded in the market."
The ECB also dropped a reference to inflation risks being
"broadly balanced" and said signs of stabilisation in the
economy's decline needed further confirmation, a downbeat view
which pushed the euro to session lows against the dollar
The U.S. Federal Reserve, the Swiss National Bank and the Bank of Japan have already reduced credit costs below 1 percent while the Bank of England cut British rates to 1.0 percent earlier on Thursday.
"While Mr Trichet was careful not to signal too directly that a magnitude of the policy rate reduction, he did note that a 50 bp cut was 'embedded in the market' - suggesting that a 50bp cut is likely," Barclays Capital economist Julian Callow said.
Still, Morgan Stanley's Elga Bartsch said Trichet had failed to give any clear indication on the size of the likely March cut, although she also expected a half-point reduction.
NON-STANDARD MOVES?
The ECB has never cut rates below 2 percent in its 10-year
history but has embarked on its most aggressive easing cycle
ever in the last four months, slashing benchmark credit costs by
225 basis points from October's peak of 4.25 percent.
(For graph, right-click on
Trichet said that zero interest rates were not appropriate "at this stage" but that the ECB was open to other steps to boost the economy further. Still, he stopped short of signalling the ECB would follow other central banks into direct asset purchases. [ID:nL4210695]
The ECB's lending of unlimited funds at fixed interest rates to commercial banks in the last few months was already a non-standard measure, he said, and this would continue for as long as needed.
"Again, we are not in the same universe as the other central banks. We each do what we judge appropriate," he said. "I do not exclude other possible non-standard measures."
Trichet also noted that although Thursday's decision was unanimous, that did not mean that the ECB's 22 policymakers always had the same view.
Policymakers including Yves Mersch and George Provopoulos have cautioned against very low euro zone rates, but Cyprus central bank governor Athanasios Orphanides said it was a fallacy that policy becomes ineffective when rates hit zero. Central banks should not be shy of cutting rates aggressively to stave off economic shocks, he said. [ID:nLT3422].
UniCredit economist Marco Annunziata said the ECB's stance on zero rates and unconventional measures seemed to be softening. An announcement could come as soon as March.
"The debate within Council is lively," he said.
"We still think that the ECB will go all the way to 1 percent. The news today is that risks to our call has shifted from being slightly on the upside to leaning to the downside, because evidence will likely point in that direction and they seem more open than ever (to rates in the proximity of zero)."