ECB on hold for now, but doves will win in the end

After disappointing markets in December, we expect the ECB to indicate at its forthcoming meeting that the door is still open to bolder policy support. The Bank is unlikely to alter policy for now given the firm tone of recent survey data and the damage that such a change of heart might do to its credibility. However, if growth slows in the coming months and inflation expectations weaken as we expect, it may not be long before the Bank concedes that it must do more. We see it increasing the pace of monthly asset purchases and perhaps cutting interest rates in Q2.