"With increased uncertainty and the prospects of large fiscal stimulus, the ECB's direction of travel after today's rate cut is no longer as clear as it was a few weeks ago," Carsten Brzeski, global head of Macro at ING, said in a note.

FRANKFURT, March 7 (Xinhua) -- The European Central Bank (ECB) on Thursday cut interest rates by 25 basis points, emphasizing that it would rely on future data to determine its policy course.

However, with growing uncertainty and the prospects of large-scale fiscal stimulus, the ECB's path forward is less clear than it was a few weeks ago, experts observed.

150 BASIS POINTS DOWN

Effective March 12, the interest rates on the deposit facility, the main refinancing operations and the marginal lending facility, will be decreased to 2.50 percent, 2.65 percent and 2.90 percent respectively, said the central bank in a statement.

It is the sixth time that the ECB has lowered key interest rates and a total of 150 basis points have been cut since June last year.

"Our monetary policy is becoming meaningfully less restrictive," the statement added.

Despite the cuts, the central bank's long-standing battle against inflation is far from over, which ECB President Christine Lagarde has repeatedly underlined.

As a result, borrowing costs in the euro area have been brought down and lending has picked up, Lagarde confirmed at a press conference.

The lending, however, "remains subdued overall," said the ECB, citing the effects of past interest rate hikes.

The current cycle of rate cuts marks a rewinding of the aggressive rate hikes in response to stubbornly high inflation in the euro area.

In an unprecedented move, the ECB hiked key interest rates by a total of 450 basis points in a little over one year since July 2022.

INFLATION NOT ON TARGET

The ECB published on Thursday its latest staff projections on inflation and economic growth, revising its 2025 inflation estimates upward.

The ECB staff project headline inflation to reach 2.3 percent in 2025, 1.9 percent in 2026 and 2 percent in 2027, blaming the "stronger energy price dynamics" for the revisions.

Lagarde said that inflation would come back to the target level in 2026 rather than 2025, as was shown by data.

Still, the central bank insists that the disinflation process is well on track.

According to EU statistics, inflation in the euro area edged down to 2.4 percent in February from 2.5 percent in January.

UNCLEAR POLICY DIRECTION

On Thursday, Lagarde fell short of confirming her earlier assertion that the direction of travel was clear for the ECB, an indication that the rate cuts would go on.

The ECB has now revised its growth projections for the euro area downward, expecting 0.9 percent growth for 2025 and 1.2 percent growth for 2026.

"The economy faces continued challenges," the ECB said.

Repeating that the ECB is not pre-committing to a policy path, Lagarde stressed that the central bank will need to resort to its data-dependent and meeting-by-meeting approach to decide on its next move -- to deliver another rate cut, or to pause.

Lagarde maintained that the ECB needs to be vigilant and agile in the face of risks and uncertainties.

The European Commission has proposed an 800 billion-euro (841 billion U.S. dollar) plan to beef up its defense industry under the "ReArm Europe" plan. Meanwhile, Friedrich Merz, whose party Christian Democratic Union just won the election in Germany, has vowed to raise hundreds of billions of euros for defense and infrastructure.

Lagarde disclosed that the governing council members of the ECB believed that the massive spending plans would inevitably boost the EU economy.

She said that the ECB will need to take its time to figure out how the spending plans are going to impact the inflation prospect.

"With increased uncertainty and the prospects of large fiscal stimulus, the ECB's direction of travel after today's rate cut is no longer as clear as it was a few weeks ago," Carsten Brzeski, global head of Macro at ING, said in a note.

Meanwhile, if most of the fiscal stimulus is delivered, there will no longer be the need for the ECB to bring rates into slightly accommodative territory, said Brzeski.