A tectonic shift in German fiscal policy has compounded uncertainty for traders trying to bet on how fast the European Central Bank will cut rates for the rest of the year, with a change to the bank's guidance on Thursday reinforcing that.

The European Central Bank is set to cut interest rates again on Thursday. After cutting borrowing costs rapidly over the past nine months as inflation retreated and economic growth faltered, the euro zone's central bank has telegraphed another 25 basis point reduction in the deposit rate.

The ECB has cut rates five times since June as inflation retreated and economic growth faltered. But with rates slowly approaching a level that no longer restricts economic growth, one might expect an end to the easing cycle.

In particular, the decision to lower the deposit facility rate – the rate through which the Governing Council steers the monetary policy stance – is based on its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.

Christine Lagarde said the central bank is switching “to a more evolutionary approach” as it will take longer for inflation to cool towards its 2pc target.