AFP - The European Central Bank is likely to cut its key interest rate to an all-time low Thursday and may break new ground as it seeks ways to resolve a deepening recession.
  
"It seems odds-on that the European Central Bank will cut interest rates again," IHS Global Insight chief European economist Howard Archer said.
  
UniCredit chief eurozone economist Aurelio Maccario said it is "clear to everyone that the refi (refinancing) rate will go lower but not much lower" than the current level of 1.50 percent.
  
In the past few days, senior ECB policymakers "have also indicated that the ECB could take other steps" to boost the economy, Archer noted.
  
Efforts to haul the 16-nation eurozone out of its first recession could drag the ECB further into murky waters called quantitative easing, essentially the creation of money to boost economic activity.
  
The US Federal Reserve, Bank of England (BoE) and Bank of Japan have gone down this path by unveiling plans to buy government and corporate debt and high-risk, mortgage-backed securities.
  
The ECB has instead focused on the eurozone banking sector, which controls business financing on a much greater scale than elsewhere.
  
The central bank's first move is likely to be a doubling of the maturity of refinancing operations, which provide funds to commercial banks at fixed rates, to one year from six months.
  
ECB president Jean-Claude Trichet maintains this is an example of "credit easing" as opposed to quantitative easing, a highly controversial strategy.
  
It "is the natural next step in the bank's current strategy of working through the banking system rather than sidestepping it as the Fed and BoE have begun to do," Maccario said.
  
In a second step expected by many to take a few months, "the ECB may purchase private sector bonds" from banks, Natixis economist Cedric Thellier said.
  
That would give banks an incentive to buy corporate bonds and thereby boost funds going to companies, while still working through the banking system.
  
Eurozone economic perspectives have turned increasingly gloomy since late 2008 when the world was rocked by US investment bank Lehman Brothers' collapse.
  
The ECB surprised markets last month when it slashed its 2009 eurozone forecast to a contraction of 2.7 percent but since then analysts like Archer have said the economy could in fact shrink by 4.0 percent.
  
"There is a very real and growing risk that the eurozone's recession could extend well into 2010," he said.