The European Central Bank has cut interest rates for the fourth time this year amid political turmoil in its largest economies, France and Germany.

Policymakers cut the deposit rate from 3.25% to 3%, having begun cutting from a record high of 4% in June. This is the rate for banks to make overnight deposits and also serves as the main tool for the ECB to steer the monetary policy stance.

The step was widely anticipated by the market, with further cuts on the horizon in 2025.

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The central bank removed its message that it needed to “keep policy rates sufficiently restrictive for as long as necessary,” which was closely-watched by traders.

“The disinflation process is well on track,” the central bank said in a statement on Thursday.

It said: “The Governing Council is determined to ensure that inflation stabilises sustainably at its 2% medium-term target.

“It will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance.

“In particular, the Governing Council’s interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.

“The Governing Council is not pre-committing to a particular rate path.”

The ECB said it expects “a slower economic recovery than in the September projections” for the eurozone economy as it cut interest rates for the fourth time this year.

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ECB predicts that the Eurozone economy will grow by just 1.1% in 2025, down from its September estimate of 1.3%. It then forecasts growth of 1.4% in 2026, down from a previous projection of 1.5%. It expects growth of 1.3% in 2027.

Joe Nellis, economic adviser to accountancy and advisory firm MHA, said: "While inflation remains a little above the ECB’s official target of 2%, it is no surprise that the Bank has today decided to cut interest rates to 3% in what is the fourth cut this year.