A consensus is forming at the European Central Bank to take the interest rate it charges banks to park money deeper into negative territory in December, four governing council members said, a move that could weaken the euro and push up inflation.
Some argue that a deposit rate cut should even be larger than the 0.1 percent reduction currently expected in financial markets, the policymakers said.
They are keen to exhaust the conventional and more direct monetary policy tool as they also consider amending the 60-billion-euro asset purchase program, a far more contentious issue that they have yet to agree on.
The ECB last month raised the prospect of more monetary easing at its Dec. 3 meeting to combat ultra-low inflation, which is at risk of undershooting the target of nearly 2 percent as far ahead as 2017 due to low commodity prices and weak growth.
A rate cut aims to discourage banks from parking money at the central bank and start lending to generate growth. It can also weaken the currency as cash leaves the euro area in search of higher returns, boosting inflation as imports become more expensive.
The euro fell by as much as half a cent in response to the Reuters story and money market rates dipped.
The ECB cut its deposit rate to -0.2 percent in September 2014 and said it could not go any lower. However, other central banks have cut further, including the Swiss and Danish central banks to -0.75 percent, showing that deeper cuts are possible.
Three of the ECB policymakers said debate is now about the size of the rate cut with some arguing that a 0.1 percent reduction, already priced in by markets, would have little impact.
Two policymakers said the bank should go for a bolder move, in line with its recent tradition of delivering policy moves in excess of expectations.
"Let's go for a big cut," one Governing Council member, who asked not to be named, said.
"There is no bottom to the deposit rate in the near term, it could be lowered quite sharply still," he said. "There must be a bottom but it's further out."
Two of the Governing Council members said there was no doubt that the ECB would act in December because inflation is still close to zero while a third one said the deposit rate cut was the least contentious proposal on the table.
Eonia forwards, a key indicator of market expectations, suggest a 60 percent chance of a 10 basis points cut in December while analysts see both a 10 basis point cut and an expansion of the asset buys.
The ECB is working with around 20 different action proposals, mostly relating to asset purchases, and its committees are expected to narrow down the options in the weeks leading to the December rate meeting after circulating them among the euro areas 19 central banks, a source familiar with the situation said.
A simple extension of the asset buying programme would have a limited impact and it is complicated to add new assets to the plan as each asset class has particular set of issues, one policymaker said.
Including corporate bonds could disrupt the market, for equities the ECB's share would be too small for it to have a meaningful portfolio, while including a wider range of public agencies' debt raises tricky policy questions, he added.