Berlin - Dwindling inflation and a dramatic economic slowdown is likely to pave the way for the European Central Bank (ECB) to deliver another hefty rate cut Thursday, trimming borrowing costs to an historic low of 1 per cent.

Thursday's widely forecast 50-basis-point reduction in the cost of money in the 16-member eurozone will bring the total rate cuts made by the ECB since October to 325 basis points reflecting its effort to spur economic growth.

The predicted ECB rate cut - its sixth since October - will also coincide with Thursday's Group of 20 (G20) big world economies summit in London, which is aimed at bolstering global economic confidence and revamping world financial rules.

Adding to the signs that another ECB rate cut was likely Thursday, the European Commission said Monday its closely watched economic sentiment indicator for the eurozone fell from 65.3 in February to hit 64.6 in March, its lowest level since the survey began in 1985.

"The weaker-than-expected economic sentiment data for March will pile further pressure on the ECB to cut its main interest rate by 50 basis points later this week," said ING economist Martin van Vliet.

Going forward, however, economists are divided on whether borrowing costs at 1 per cent will bring the ECB's current rate-cutting cycle to an end or if the bank will continue easing monetary policy.

Amid evidence that the recession has deepened, Jennifer McKeown, European economist with the research group Capital Economics believes the ECB will trim its benchmark refinancing rate to 0.5 per cent in the coming months.

But the scale of the downturn has meant that central banks around the world believe they can no longer rely solely on interest rates and have been forced to revert to so-called unconventional measures to combat the global recession.

Having effectively rejected the ECB moving to a zero interest rate regime, bank chief Jean-Claude Trichet has indicated that the Frankfurt-based ECB has been considering unconventional measures. This could possibly include implementing a so-called quantitative easing policy, which is effectively printing money.

But many analysts believe that it could still take a while before the ECB follows the world's other leading central banks - the US Federal Reserve, the Bank of Japan and the Bank of England - and takes steps to boost the money supply as part of moves to underpin economic activity.

Preliminary data to be released ahead of Thursday's ECB meeting, is forecast to show annual inflation in the eurozone sliding to 0.9 per cent in March from 1.2 per cent as falling energy costs, declining food prices and the dramatic contraction in economic growth have undercut price pressures.

This will also leave inflation well within the ECB's inflation target of "below but close to 2 per cent."

Along with the refinancing rate, the ECB is predicted to trim on Thursday by 25 basis points its deposit rate, which it pays on amounts held at the central bank overnight. This would bring the deposit rate down to 0.25 per cent, after the bank cut the facility last month to 0.5 per cent.

At the same time, however, the sharp fall in inflation has helped to raise the spectre of deflation taking hold in the eurozone economy.

Indeed, Germany's statistics office said Friday annual inflation in Europe's biggest economy fell to 0.5 per cent in March, its lowest level in nearly ten years.

Meanwhile, the bleak economic data has continued to roll in, as a consequence pointing to the recession gaining strength as the new year got underway and raising the prospects of a major contraction in the eurozone bloc's first-quarter economic growth rate.

The International Monetary Fund already expects the eurozone economy to shrink by 3.2 per cent this year.

Eurozone factory orders chalked up their biggest fall on record in January tumbling 34.1 per cent year on year, the European Union's statistics office said Friday as global demand has plunged and European companies have cut production and begun laying off workers.

The release of the figures followed the publication of statistics earlier in the week showing industrial production plummeting by 17.3 per cent in January.

Also underscoring the depth of the slowdown, German business confidence hit near a 26-year low in March and the nation's exports falling by a massive 20.7 per cent year-on-year in January. Germany is the world's leading export nation. (dpa)