ECB's Panetta: reduced room for more rate cuts but must be flexible

ROME (Reuters) -The European Central Bank has reduced room for further rate cuts but should maintain a pragmatic, flexible approach and make future decisions on a case-by-case basis, governing council member Fabio Panetta said on Friday.

ECB policymakers are scheduled to meet on June 5, with financial markets expecting it to lower its key deposit rate to 2% from 2.25%.

That would mark the bank's eighth cut in an easing cycle that which began in June last year and has seen the deposit rate come down from 4% to the current 2.25%, reflecting diminishing price pressures and concerns about weak economic growth.

"The room for further rate cuts has naturally diminished," Panetta, the governor of the Bank of Italy, said in a keynote speech in Rome.

"However, the economic outlook remains weak, and trade tensions could lead to a deterioration," he added.

"It will be essential to maintain a pragmatic and flexible approach, considering liquidity conditions and the signals coming from financial and credit markets."

Presenting the Bank of Italy's annual report, Panetta said the outcome of trade negotiations between the euro zone and the United States remained uncertain but the tensions were in any case bound to have a "significant impact" on the economy.

(Reporting by Valentina Za and Giuseppe Fonte, writing by Gavin Jones)