March 27, 2014 / 3:11 PM / 5 years ago

Only 2 of 72 polled see April ECB rate cut; lukewarm praise for bank reform-Reuters Poll

* For poll data see or

* 33 of 45 say EU banking reforms to firm regional ties

* All but two of 72 economists see ECB on hold in April

By Deepti Govind

BANGALORE, March 27 (Reuters) - The European Union’s banking reforms will boost interbank business but won’t end bailouts of failing lenders, economists polled by Reuters say.

Thursday’s poll also showed an increasing number of forecasters agree with the European Central Bank’s recent decisions to leave monetary policy unchanged, and very few think it will cut rates from a historic low of 0.25 percent next week.

Asked what the bank will do when at its April 3 meeting, only two of 72 economists now predict a rate cut, versus 26 of 78 who did before last month’s meeting.

EU governments have agreed a plan to make the ECB the watchdog of euro zone banks at the end of the year and will use fees paid by banks to provide a clean-up fund for closing those that fail.

Thirty-three of the 45 economists who answered an extra question said the banking deal would make the union stronger and 20 said it would increase interbank lending. Respondents were allowed to choose more than one option. (

“On the regulatory front you’ve got to have some sort of ‘one voice’,” said Jinny Yan, economist at Standard Chartered. “Without this it is impossible to go down the route of full monetary union which is why it’s necessary.”

The deal, which also aims to end the ‘doom-loop’ between national budgets being used to save troubled banks and governments depending on banks to buy their bonds, has its short-comings though.

It will take eight years to fill the clean-up fund and some sceptics say the final 55 billion euro ($76 billion) capacity may not be not enough in the end. But the fund will be allowed to borrow.

And while the reform enables the central bank to initiate bank closures, the process for shutting them down is complex, leaving six of 45 economists unconvinced the deal will have a significant impact.


Answering a separate question, 24 of 42 respondents - including those who expected the deal to be beneficial - said it will not be enough to end government bailouts.

“The European banking union project was meant to address the very origin of the euro zone crisis by ending the vicious cycle between weak banks, systemic market panic, expensive taxpayer-funded bailouts and government debt crises,” said Lena Komileva, economist at G+ Economics.

“All of those drove countries like Cyprus, Ireland and Spain to the brink of sovereign bankruptcy and raised doubts about the euro’s survival. The deal that was reached will not prevent either from recurring.”


The wider poll of 72 economists found all but two expect the ECB to leave rates on hold next week despite February inflation at an uncomfortably low 0.7 percent.

An increasing number of analysts - 33 of 53 in Thursday’s poll versus 27 of 45 in an economy poll conducted last month - also agree with the ECB’s decision to leave policy unchanged.

Of the 20 who do not agree, most said the bank should start buying sovereign bonds outright - something that, while not out of the question if aimed at fighting deflation, would need strong justification under rules that ban the ECB from directly financing governments.

Although the poll’s median responses showed no change in rates until at least October 2015 - the end of the survey’s horizon - some chance of a rate cut remains, possibly as early as next week. The median forecast on the likelihood of a cut on April 3 was just 15 percent.

“We think the hurdle is high for (ECB action) next week but we can’t rule it out given that there are still concerns about bank lending and also there is a risk that inflation could disappoint,” said Jeavon Lolay, head of international macroeconomics at Lloyds Banking Group. ($1 = 0.7254 euros) (Additional polling and analysis by Ishaan Gera; Editing by Ruth Pitchford)

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