European Central Bank president Jean-Claude Trichet said inflation risks continued to diminish as the euro zone economy weakened and appeared to suggest a further rate cut was more likely in March rather than February.
Speaking after the ECB cut its benchmark interest rate by 50 basis points to 2 per cent today Mr Trichet said economic data and surveys since the ECB's last meeting pointed to a "further weakening of economic activity around the turn of the year, indicating the materialisation of previously identified downside risks to activity".
He said the "next important rendezvous" would be in March as the central bank would have fresh economic forecasts then. The next meeting was only three weeks away, he said.
Today's cut, in line with consensus forecasts, marks the fourth in just over three months.
The majority of economists in a Reuters poll had expected the ECB to take another 50 basis points from borrowing costs, although the level of uncertainty was unusually high.
Economists said a February move could not be ruled out if economic data soured further. "Trichet did say that the next meeting is only in three weeks' time. But we know how quickly the economic situation is moving," said Steve Barrow, head of G10 currency research at Standard Bank in London.
"But that's what he's saying, so we'll have to see whether the economic data in the meantime makes that position untenable."
Euro zone inflation fell to 1.6 per cent in December, compared with the ECB's goal of keeping inflation below but close to 2 per cent, and the bloc was confirmed as in recession late last year.
While rates at 2 per cent match the lowest level in the 10-year history of the ECB, they pale alongside almost-zero borrowing costs in the United States and Japan, as well as a UK central bank thought to be headed in a similar direction.
The euro turned higher against the US dollar after Mr Trichet's comments.
Mr Trichet said euro zone inflation risks were continuing to diminish, although they could pick up after mid-year, and demand would be dampened for a protracted period of time.
"We consider risks to price stability over the medium term to be broadly balanced," he said.
"This takes into account the latest economic data releases and survey information which add clear further evidence to the assessment that the euro area is experiencing a significant slowdown."
Agencies