Frankfurt  - The European Central Bank (ECB) meets later Thursday amid market expectations that dwindling inflation and slowing economic growth will force it to deliver another rate cut.

The consensus among economists is that the ECB's 22-member rate-setting council will cut interest rates from 2.5 per cent to 2 per cent for what is shaping up to be a tough economic year.

But some economists believe that the Frankfurt-based bank might decide to leave monetary policy on hold or deliver only a modest reduction of 25 basis points.

This follows the cautious message from from ECB chief Jean-Claude Trichet at the end of the bank's meeting in early December when its governing council cut borrowing costs by 75 basis points.

That reduction was the biggest reduction the ECB has agreed to its 10-year history and brought rates in what is now the 16-member eurozone down to 2.5 per cent.

"It is unlikely that the ECB will go against the trend of record low interest rates in the industrial nations," Helaba economist Stefan Muetzer said, referring to recent cuts in borrowing in the US, Japan and Britain.

As the economic gloom in Europe has deepened in recent months, the ECB has cut rates by 1.75 per cent since October in a bid to spur growth at a time of looming recession.

Eurozone inflation plunged to its lowest level in more than two years in December, dropping to a lower-than-forecast 1.6 per cent from 2.1 per cent in November.

The fall in inflation also took consumer prices comfortably below the ECB's annual inflation target of close to but below 2 per cent for the first time since August 2007.

In an interview ahead of the ECB meeting, the bank's vice president, Lucas Papademos, indicated that a rate cut might be in the offing in view of the worsening economic situation.

In Germany, Europe's biggest economy, annual growth in 2008 slumped to 1.3 per cent, nearly half of what it was the year before. The economy contracted up to 2 per cent in the final quarter, preliminary statistics showed. (dpa)