Peter Vanden Houte, Chief Economist at ING, suggests that the ECB is not done yet with the President Mario Draghi surprised financial markets at the press conference in January by stating that it was necessary to review and possibly reconsider the monetary policy stance at the next meeting in early March. Key Quotes “Indeed, the latest economic indicators indicate that the Eurozone is not totally immune to the slowdown in other parts of the world, while inflation remains too low on the back of depressed oil prices. The European Commission’s sentiment indicator fell back in January to a level below the fourth quarter’s average. Industry confidence took a hit on the back of a less buoyant order-book assessment, with export orders being hurt by the slowdown seen in the emerging world. Consumer confidence also suffered slightly, though labour market expectations actually improved. December’s unemployment rate stood at 10.5%, the lowest level since September 2011. With low energy prices continuing to support purchasing power and unemployment expected to fall further, we believe that consumption will maintain some momentum. While we do not see the recovery faltering, it is clear that external conditions have worsened lately. We, therefore, scale back slightly our growth forecast to 1.5% for this year. This still incorporates a slight growth acceleration in the second half of the year. If this fails to materialise, GDP growth could actually be lower in 2016F than in 2015. More easing, therefore, seems likely, although some members of the Governing Council try to downplay this possibility to prevent financial markets from running ahead of themselves again. ‘Hawks’ within the Governing Council are more willing to vote in favour of a new rate cut than to beef-up monthly asset purchases. That said, we believe that a small increase (at least €5bn) in monthly asset purchases will be hard to avoid. Apart from that, another 10bp cut in the deposit-facility rate looks like a done deal. The ECB could go even further to push the euro exchange rate lower, but then we believe that a two-tier system will be introduced, mimicking the recent decision of the Bank of Japan. In that event, existing excess liquidity is likely to be remunerated at the current deposit rate and additional excess liquidity at the new deposit rate, which might then be at -0.50%.” For more information, read our latest forex news.