With little signs of inflation picking up, disappointing industrial production numbers and slow growth, analysts are questioning whether the European Central Bank (ECB) could signal more stimulus when it meets this coming week, having sorely disappointed markets last month.
In December, the ECB failed to meet market expectations for the bank to strengthen its quantitative easing (QE) program. It opted instead to widen the range of asset purchases it makes, extend the duration of the program to March 2017 (and possibly beyond) and announced a slightly more modest deposit rate cut. The current negative deposit rate effectively means euro zone banks are being charged to park cash at the central bank.
During the December press conference, ECB President Mario Draghi defended the package as "adequate", arguing that size and composition had been carefully calibrated by the central bank. Still, with investors expecting more and having their hopes dashed, there was a sell-off in European equities following the meeting.
Defending the central bank, ECB Vice President Vitor Constancio told CNBC in December that "the markets got it wrong in forming their expectations" and he rejected the view that the ECB had lost some credibility over its forward guidance.
"After our meeting in October we said that we would reassess the degree of accommodation so we were talking about a recalibration of our measure. We were not talking about, ever, about a new type of QE2 or something like that. That's not what we were talking about," he told CNBC in Frankfurt.
There was speculation that the ECB tempered its announcements due to pushback from hawks, such as Jens Weidmann, on the bank's governing council who are opposed to expanding the bank's balance sheet.