ECB slashes interest rates and keeps door ajar to more easing

The European Central Bank cut interest rates as expected on Thursday and kept the door ajar to more, even as a looming trade war with the US and plans to boost military spending drive Europe's biggest economic policy upheaval in decades.

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Easing for the sixth time since June, the ECB lowered its deposit rate to 2.5% in a nod to slowing inflation and faltering growth, and said that rates were still restricting growth, even if less so than in the past.

That wording suggests that more rate cuts may be coming as the bank has long declared that restriction is no longer necessary while inflation, at 2.48 last month, is safely heading back to its 2% target this year.

"Monetary policy is becoming meaningfully less restrictive," the ECB said in a statement, changing its previous guidance that rates remained restrictive. "The disinflation process is well on track."

The nuanced language means that another rate cut in April is not a given, as policy hawks are already arguing for caution.

The ECB also lowered its 2025 economic growth forecast for the fourth straight time on Thursday, putting expansion in 2025 at just 0.9, only slightly above the 0.7% pace recorded last year.

Inflation was meanwhile seen at 2.3% this year, above the 2.1% seen three months ago.

"The downward revisions (in growth) for 2025 and 2026 reflect lower exports and ongoing weakness in investment, in part originating from high trade policy uncertainty as well as broader policy uncertainty," it said.