The European Central Bank (ECB) is expected to cut interest rates again later this week as inflation drifts back towards its 2% target, but policymakers will likely stay tight-lipped on future moves.
The ECB began raising rates sharply in mid-2022 to throttle surging consumer prices but has already started to ease the pressure as inflation rates have fallen.
The Frankfurt-based central bank, which sets monetary policy for the 20 countries that use the euro, made its first cut in June, reducing the key deposit rate to 3.75% from a record high of 4%.
After taking a breather at its July meeting, the ECB's governing council is expected to make another quarter-point cut on Thursday, providing further relief for households and businesses.
This will only be the second rate reduction for the ECB since 2019.
"A cut is fully priced in by the market and there seems to be a broad consensus among (governing council) members," analysts at HSBC said in a note.
Policymakers' confidence in moving ahead with cuts has been bolstered by signs that inflation, which has been bumpy over the past year, is now on a more sustained downward trajectory.
Eurozone inflation fell to its lowest level in more than three years in August, according to official data.
Consumer price rises slowed to 2.2% compared to the same month last year, down from 2.6% in July, leaving the figure just a whisker off the ECB's target.
Inflation rates peaked at 10.6% in October 2022 after Russia's invasion of Ukraine and post-pandemic supply chain woes sent food and energy costs soaring.
A lackluster performance in some parts of the eurozone has also fuelled calls for more cuts to take pressure off the single currency area.
While signs in the first half of the year were positive, recent indicators have pointed to a deteriorating outlook.
The eurozone's largest economy, Germany, shrank unexpectedly in the second quarter, indicating that a hoped-for rebound will fail to materialize this year.
Meanwhile, wage growth, a key area of concern for the ECB, slowed markedly in the second quarter, easing fears that high labor costs could spark a resurgence in inflation.
Rate-setters will also be armed with updates to the central bank's own inflation and growth forecasts to help guide their decision.
The U.S. Federal Reserve (Fed) looks poised to start cutting rates at its meeting next week, following recent weak data and a about of market turmoil.
This will boost confidence among ECB policymakers about forging ahead with their own cuts.
Bank of France governor Francois Villeroy de Galhau, a member of the ECB's governing council, has been calling for a cut at this week's meeting.
"If we waited until we were actually at 2% to lower rates, we would be acting too late," said the central bank chief in an interview with French media last month.
With Thursday's reduction a near certainty, investors will closely watch ECB president Christine Lagarde's post-meeting press conference for clues about the path ahead.
However, analysts say the ECB will unlikely let much slip about its next moves.
"We do not think that the ECB will provide clear guidance for the future, but remain data-dependent," HSBC said.
The central bank has, in recent times, insisted it will not foreshadow its future moves and will rely solely on incoming data.
Policymakers have reason to be cautious, with signs that inflation in some areas remains stubborn.
Closely-watched core inflation, which strips out volatile energy and food prices, remained at 2.8% in August, while services sector inflation accelerated.
Nevertheless, ING bank said it expected the ECB to push ahead with further cuts later in the year in response to the "weakening economic prospects of the eurozone."
