Euro zone inflation was heading back to target but there were still some worries about inflation, warranting caution in signalling further policy easing, the ECB concluded last month, according to the accounts of their January 29-30 meeting.
The ECB cut rates for the fifth time since June last month and hinted at even more policy easing, arguing that inflation was now well on its way back to its 2% target and there was no more need to restrict economic growth.
"Members concurred that the disinflationary process was well on track," the ECB said in the accounts. "There was some evidence suggesting a shift in the balance of risks to the upside since December."
Investors now expect the ECB cuts the deposit by another 25 basis points next Thursday and see two more moves later in the year, taking the benchmark rate to 2% by the close of 2025.
While the ECB did not make any explicit commitment to further rate cuts, it said the current rate was still restricting growth and a move towards a more neutral setting was possible if inflation was under control.
"As long as the disinflation process remained on track, policy rates could be brought further towards a neutral level to avoid unnecessarily holding back the economy," the ECB said.
The debate over cuts beyond March is likely to intensify in the coming week, partly because of opposing trends that may pull inflation in different directions.
Persistently weak economic growth and a sharp slowdown in wage growth are both likely to temper price pressures. However, energy costs are rising, the euro is weaker and a looming trade war with the U.S. could all push consumer prices up.
