By Francesco Canepa and Balazs Koranyi
FRANKFURT (Reuters) -The European Central Bank cut interest rates on Thursday and policymakers guided for a further reduction in March as concerns over lacklustre economic growth supersede worries about persistent inflation.
It was the fifth ECB rate cut since June and markets expect two or three more this year, driven by arguments that the biggest inflation surge in generations is nearly defeated and the flagging economy needs relief.
"We know the direction of travel," ECB President Christine Lagarde told a press conference after the decision.
"At which pace, with what sequence, what magnitude, will be informed by the data that we will collect in the coming weeks and months and by the analysis that our staff will conduct."
Three ECB policymakers who spoke to Reuters on Thursday said they thought a further rate cut was likely to go through in March without much resistance before debate within the Governing Council on further easing becomes more heated.
With the euro zone economy stagnating in the last quarter due to an industrial recession and weak consumption, the ECB is seen sticking to its easing path even after the U.S. Federal Reserve kept rates unchanged and hinted at a lengthy pause.
ECB policymakers are likely to have breathed a sigh of relief after new U.S. President Donald Trump's administration did not impose blanket trade tariffs as feared, although his threats to do so have cast a shadow on the outlook.
Lagarde said tariffs would have a "global negative impact" on growth but their potential effect on inflation was "far more complicated" due to possible retaliation and market adjustments.
DOMESTIC WEAKNESS
A rate cut in March would take the ECB's deposit rate to 2.5% - the upper end of the so-called neutral range, which neither spurs nor stifles economic activity, according to ECB staff estimates.
The three policymakers who spoke to Reuters after the meeting said they expected a broader, deeper discussion about whether borrowing costs should fall below that level, as already suggested by board member Isabel Schnabel.
On the one hand, wage growth across the 20 countries that share the euro currency is easing, the labour market is softening, oil prices have come off early-year highs and the dollar's relentless firming seems to have stopped for now.
But inflation is still above the ECB's target and poor productivity growth along with labour shortages could keep up price pressures, likely limiting just how far the bank can go.