(Reuters) - The European Central Bank may be forced to print money this year to fight off deflation risks and boost what remains very fragile economic growth, according to a growing minority of economists polled by Reuters.
A third - 26 of 78 economists - have also penciled in a cut in the refinancing rate from the current 0.25 percent at the ECB's March 6 meeting. Most expect a reduction of 5 to 15 basis points mirroring the Bank of Japan's interest rate moves.
That is the strongest view for an easing in policy in Reuters polls since November last year when the ECB surprised markets by cutting the benchmark rate by 25 basis points.
But most agree that the ECB has nearly run out of options with rates and will need to look to more aggressive policy measures, such as purchasing sovereign bonds as the U.S. Federal Reserve, Bank of England and Bank of Japan have done.
Although still a minority view, 19 of 63 economists polled this week expect the central bank eventually to launch its own version of such stimulus and expand its balance sheet.
In the last Reuters ECB survey only a handful, 8 of 64, placed a greater than fifty percent probability of such a move.
But with data pointing to a deceleration in price growth throughout the monetary union, even in No. 1 economy Germany, and with overall economic activity languishing well below potential, that view is changing.
The ECB's primary mandate is to maintain the inflation rate at a little below two percent but price growth in the euro zone has averaged well below that for well over a year now.
Germany reported on Thursday that EU-harmonized annual inflation decelerated more than expected to 1.0 percent year-on-year in February from 1.2 percent the previous month while it was up 0.5 percent on the month, less than the 0.7 percent forecast in a Reuters poll.
"The case for quantitative easing has gained traction among investors since continued inflation weakness may get distorted by high unemployment, sub-par growth and chronic credit market weakness," said Lena Komileva, economist at G+ Economics.
ECB policymakers, including President Mario Draghi, have so far played down the threat of a deflation and steered clear of indicating what form of quantitative easing could be undertaken if the risk intensifies.
That lack of clarity showed among forecasters in the poll.
While most said the central bank could stop selling back the securities it buys - known as "sterilization" - a few said it could buy sovereign bonds or conduct another long-term refinancing operation with a maturity of more than three years.
"Central banks are generally reluctant to buy government bonds, and the issues are more complex for the ECB than for others," economists at BNP Paribas wrote in a note this week.
For example, Germany's Bundesbank, the national central bank of the euro zone's strongest member, remains staunchly opposed to QE.
"ECB President Mario Draghi has expressed a preference for buying private sector assets, but there are complications in terms of technical complexity, pricing and the amount of available assets. We conclude that some such purchases (sovereign bonds) are likely."
BNP Paribas is nonetheless predicting the ECB to first launch 300-500 billion euros in QE in the second half of this year.
But based on the ECB's peers' experience, whether or not huge asset purchases actually boosts inflation is at best unclear.
Inflation has remained subdued in the U.S. and to a lesser extent, the UK, where central banks have purchased over $3 trillion and 375 billion pounds of securities respectively since Lehman Brothers collapsed in 2008 and triggered the financial crisis.
The Bank of Japan has been printing money for the better part of two decades, aggressively stepping it up in late 2012 and the only certain impact has been to boost share prices. Inflation there remains dangerously low too.
Economists also predicted the deposit rate to be kept on hold at zero percent at the meeting. Only six said the ECB will trim the deposit rate to negative, which would mean charging banks for parking money with it.
A majority of economists also expect the ECB to downgrade inflation forecasts for 2014 and leave growth estimates unchanged when it releases its quarterly staff projections at next week's meeting.
For 2015, it will likely keep both growth and inflation forecasts unchanged, economists said.
(Polling and analysis by Ishaan Gera and Sarbani Haldar; Editing by Ross Finley/Jeremy Gaunt)