The European Central Bank cut interest rates on Thursday, for the fifth consecutive time, amid slowing growth in the region’s economy.
Policymakers lowered the bank’s key rate a quarter point to 2.75 percent as inflation remained relatively close to their 2 percent target. The moves comes a day after the U.S. Federal Reserve held rates steady, as the economic outlook of the United States and Europe diverge.
“The disinflation process is well on track,” Christine Lagarde, the president of the European Central Bank, said on Thursday, adding that she expected inflation to return to the target during the course of this year.
Annual inflation in the eurozone was 2.4 percent in December, slightly higher than the previous month as energy prices rose.
The central bank’s policymakers have differing perspectives about the outlook for inflation. Some emphasize signs of persistent inflationary pressures, such as price growth in the services sector, which has held stubbornly around 4 percent. Others, including the bank’s chief economist, Philip R. Lane, have said that if borrowing costs stay too high for too long then inflation could fall too low. But the decision on Thursday to cut rates was unanimous, Ms. Lagarde said.
She added that the eurozone’s economy was expected to remain weak in the near term. Earlier in the day, data showed the economy stagnated in the fourth quarter of last year, faltering after it expanded 0.4 percent in the previous quarter.
The unexpected slump increases pressure on central bank officials to cut interest rates to help generate economic growth in a region that is troubled by its waning competitiveness with the United States and China and is extremely vulnerable to trade disruptions. The German economy, the bloc’s largest, has been shrinking for the past two years as high energy costs and interest rates weigh on businesses and consumers, and political uncertainty ahead of elections next month has been exacerbating the issue.
But officials at the central bank have said that governments need to make cross-border business and investments easier, and not rely on monetary policy to stimulate economic growth.
Although central bankers have gotten the worst of the recent inflation crisis behind them, they face new economic risks, particularly the threat of tariffs by Mr. Trump. If tariffs are levied and countries retaliate, a trade war could send turmoil through the global economy and shake up prices.
Last year, both the U.S. Federal Reserve and the European Central Bank cut rates by a full percentage point. Now their paths are diverging.
Traders expect the eurozone’s central bank to cut rates at most of its meetings in the first half of this year.
But the U.S. central bank is not expected to deliver many more rates cuts this year, despite calls from President Trump to lower rates, because the economy continues to be resilient and the labor market is strong. Mr. Trump’s policies, such as cutting back on immigration and increasing import tariffs, could exacerbate inflationary pressures at home.
The uncertainty about those policies and their potential effects on inflation abroad is making it harder for central bankers to signal what might come next.
So far, Europe has not been the central focus of Mr. Trump’s plans to increase tariffs. But a sense of how disruptive such an event would be came on Wednesday from Canada, which faces the threat of 25 percent tariffs. Canada’s central bank cut interest rates and, crucially, dropped its guidance as it waited to see whether Mr. Trump would go ahead with his proposed tariffs, which is expected to go into effect on Saturday.
Ms. Lagarde reiterated that the European Central Bank would continue to make decisions at each meeting and was not committing to any path on interest rates.
“For those who would like to have this solid forward guidance, it would be totally unrealistic to do anything of that nature,” she said. “Simply because we are facing significant and probably rising uncertainty at the moment.”
