Investing.com - The European Central slashed rates by 25 basis points as expected on Thursday as part of a bid to address flagging economic growth in the Eurozone currency area, but policymakers declined to commit to a specific path ahead for borrowing costs.

Despite noting that a "disinflation process" is "well on track" and the impact from an era of restrictive monetary policy is gradually fading, the ECB said in a statement that the Eurozone economy is "still facing headwinds".

Headline price gains have edged up for three straight months to 2.4%, while broader economic growth stalled in the final three months of 2024, raising fears the Eurozone could be facing a stagflationary backdrop.

The Governing Council decided to lower the key rate the ECB pays on deposits by Eurozone lenders to 2.75% from 3.0%. The rates pertaining to its main refinancing operations and marginal lending facility were also decreased to 2.9% and 3.15%, respectively.

In 2024, the ECB slashed borrowing costs four times, due in part to worries over tepid activity in the Eurozone and signs that a generational surge in inflation may have been cooled by the period of elevated rates.

Prior to the ECB's latest policy announcement, analysts had been keen to see if ECB officials would provide any more clarity around the possibility for further rate cuts in 2025. However, the Governing Council is "not pre-committing to a particular rate path" and will take a "data-dependent and meeting-by-meeting approach" to each decision, the ECB said.

Still, analysts at Capital Economics argued that the overall tone of the ECB's statement suggests that the central bank is "confident that inflation will soon return sustainably" to its 2% target level. They noted that the ECB also acknowledged that while new borrowing is becoming cheaper, its policy stance remains "restrictive".

"Given that policymakers no longer seem to think interest rates need to be restrictive, that’s a pretty clear signal that they expect more interest rate cuts at forthcoming meetings," the analysts said.

The ECB's decision comes just hours after the U.S. Federal Reserve opted to leave rates unchanged at a range of 4.25% to 4.5%, citing solid economic data and broader uncertainties surrounding policy moves by the new administration of President Donald Trump.

Governments in Europe have been closely eyeing developments around Trump's plans to impose sweeping tariffs on both friends and adversaries alike. Along with a host of other countries, Trump has threatened to slap import levies on the European Union, although he has so far stopped short of formally rolling out the duties. The U.S. is the biggest destination for goods out of Europe's export-dependent economy.

Speaking in a press conference, ECB President Christine Lagarde said "frictions" in global trade could make the outlook for Eurozone inflation "more uncertain".

Meanwhile, a cloudy political outlook in Europe's top economies like Germany and France has pushed up bond yields, making borrowing more expensive in the region.