The European Central Bank (ECB) is expected to cut key interest rates this week as economic activity in the euro zone grew at the faster than expected pace in the recent past.

A number of ECB watchers have been betting on a rate cut this month, but they also believe that any such decision will be a close call.

Tom Rogers of EY Eurozone Forecast said, "We think the ECB will continue to underline it has options for further easing, but hold off using them unless the recovery takes a turn for the worse. The main focus at the meeting will be on the staff's updated economic forecasts."

Rogers added that updated economic forecasts and inflation numbers would potentially create a room for further monetary policy action in the months to come. Berenberg Bank economist Christian Schulz said it would be a close call this time.

Fresh figures released by the European Union's statistics agency Eurostat showed that the rate of inflation was at 0.8 per cent in February this year, the same level as in the previous month. While inflation rate of 0.8 per cent remained well below the ECB's target of just under 2.0 per cent, it was better than economists average forecast of 0.6 per cent. Last week, ECB Chief Mario Draghi acknowledged that euro zone inflation was low but he insisted that he saw no danger of deflation.

On Wednesday, International Monetary Fund (IMF) officials urged the ECB to start purchasing public & private assets or announce more cheap loans to banks, and cut interest rates to a new record low.