The European Central Bank (ECB) has cut interest rates by 25 basis points. It's the third time this year that the rates have been cut.

The move lowers the rate that the ECB pays on banks' deposits to 3.25%, from 3.5%, and is the first back-to-back interest rate cut in 13 years.

Money markets are also nearly fully pricing in three further reductions through to next March.

It comes as policymakers are under pressure to reduce rates amid a weakening growth outlook. Previous predictions have revealed that Germany, Europe's largest economy, faces its first two-year recession in two decades.

It also follows news that eurozone inflation fell by more than initially thought last month. Separate data released on Thursday by statistics body Eurostat revealed that consumer prices across the euro area rose by 1.7% in the year to September, down from 2.2% in August.

This marks the first time since June 2021 that annual inflation has dropped below the 2% threshold, which the ECB views as optimal for price stability.

Eurostat reported that energy prices fell by 6.1% year-on-year, while services prices rose by 3.9%, food, alcohol and tobacco by 2.4% and goods by 0.4%.

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Eurozone inflation had initially been estimated at 1.8% in September, in its flash reading at the start of this month.

Among member states, the lowest annual inflation rates were recorded in Ireland (0.0%), Lithuania (0.4%), Slovenia, and Italy (both at 0.7%). On the other hand, Romania (4.8%), Belgium (4.3%), and Poland (4.2%) reported the highest rates.

Overall, annual inflation declined in 20 out of the 27 EU member states compared to August, remained stable in two, and increased in five.

However, the ECB cautioned on Thursday that inflation will pick up in the coming months before dropping back again.

"Inflation is expected to rise in the coming months, before declining to target in the course of next year. Domestic inflation remains high, as wages are still rising at an elevated pace.

"At the same time, labour cost pressures are set to continue easing gradually, with profits partially buffering their impact on inflation."

The euro dipped to its lowest level in two and a half months ahead of the ECB meeting, trading around $1.0850.

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The ECB also lowered its main refinancing operations rate to 3.4%, and the marginal lending facility rate to 3.65%.

The main refinancing operation rate is the cost for banks of borrowing funds from the ECB on a weekly basis. The marginal lending facility rate is the cost of overnight credit to banks.