Euro zone inflation, growth projections muted despite ECB stimulus - Reuters poll

By Sumanta Dey

(Reuters) - The European Central Bank's latest raft of policy measures have failed to impress forecasters in a Reuters poll, who stuck to predictions of below-target inflation and weak growth.

The euro zone's central bank surprised markets last week by cutting interest rates and pulling out some of the last policy options it had except for buying government bonds as the U.S. Federal Reserve and Bank of England have done.

After suggesting in June that interest rates had hit a floor, the ECB cut benchmark lending and deposit rates further and said it would buy asset-backed securities and covered bonds.

That sent the euro to a 14-month low of just above $1.30 - a relief for policymakers as a weaker currency should help bump up import prices as well as making euro zone exporters' goods relatively cheaper.

A survey of around 60 economists conducted this week showed inflation predictions being revised downwards from a month before, however, to an average 0.6 percent in the fourth quarter of this year and 0.7 percent in Q1 2015.

While the latest projections foresee a pick up from a euro zone inflation rate of just 0.3 percent in August, they show economists are sceptical about how successful the latest stimulus measures will be.

"This latest round of stimulus are positive but possibly not a game-changer," said Martin Van Vliet, senior economist at ING Financial Markets.

He said the stimulus would be successful only if it helps boost issuance in the ABS market. That in turn would help banks free up cash for lending on to the private sector, which has been in decline for the past two years.

A Reuters poll conducted after last week's meeting showed the ECB will probably spend 400 billion euros buying ABS and covered bonds. It also saw a 40 percent chance the ECB will eventually buy sovereign bonds with newly printed money, known as quantitative easing, or QE. [ECB/INT]

But benchmark German bund yields are already below 1 percent and while they could fall further, it is far from assured that QE would stimulate the economy in any meaningful way.

In addition to penalising banks further for parking funds with the central bank, the rate cuts mean banks will have to pay 10 basis points less for what they borrow at the ECB's first targeted long-term refinancing operation on Sept. 18.

The new programme of long-term loans for banks, which will be tied to lending to mostly smaller companies in the euro zone, was announced in June.

Reuters polls of money market traders and economists in the recent past have suggested another round of cheap cash will do little to boost private sector lending, a key requirement to spur demand, productivity and inflation.

But for now, there is no change to economic growth expectations in the 18 countries using the euro.

The poll forecast gross domestic product growth of 0.3 percent in the final quarter of this year and the same in the first three months of 2015.

For the whole of 2015, growth is seen averaging 1.3 percent before rising slightly to 1.5 percent in 2016.

Those annual predictions are slightly worse than last month and well behind expected growth in the U.S. and Britain.

"We expect that growth will remain sluggish and that inflation will remain non-existent for the foreseeable future," Jay Bryson, senior economist at Wells Fargo, wrote in a note.

"We look for the ECB to begin a QE programme centred on sovereign bonds at some point over the next few months."

(Polling and analysis by Sarbani Haldar and Swati Chaturvedi; Editing by Catherine Evans)