Elwin de Groot, Senior Eurozone Strategist at Rabobank, suggests that although the Eurozone economy managed to grow 0.3% QoQ in 2015Q4, it is uncertain whether it can maintain that pace into 2016Q1. Key Quotes “Meanwhile, the latest HICP print for February was all but terrible, showing an unexpectedly sharp fall in both headline and core inflation. Putting all this in a context of a relatively strong trade-weighted euro (as compared to mid-2015), the broad fall in commodity prices and the inexorable decline in long-term inflation break-evens, it becomes clear that the only option that the ECB does not have at this point is to “give up”. Quite aptly, these were also the closing remarks by Mr. Draghi in the January press conference. Or, in other words, the ECB will have to continue ‘cooking’, like Walt from Breaking Bad. We also expect the ECB to cut its 2016 inflation projection by at least half a percentage point from 1% in the Dec. projections (possibly with the forecast range signaling deflation risk). The 2017 estimate could also be revised lower from the previous 1.6%. However, the new 2018 estimate is key to gauging whether the ECB thinks that a return to its mandated inflation target is still possible over this horizon. Since the ECB won’t give up, we expect this to be close to the ECB’s target of “close to but below 2%.” We think it is now beyond any reasonable doubt that the ECB will announce a cut in the deposit rate. Our forecast is for a 10bp cut to -40bp (to be followed by another 10bp cut in the June meeting). Besides a deposit rate cut, we think that an extension/expansion of the liquidity providing measures is a relatively quick win We believe it will be hard for the ECB to refrain from additional policy measures as a deposit rate cut cum liquidity extension is likely to fall significantly short of market expectations. Moreover, these measures do not really address the problem of sliding inflation expectations. Therefore, we think the ECB will also have to announce an expansion or extention of its PSPP programme. We expect an additional amount of EUR10-20bn in monthly purchases.” For more information, read our latest forex news.