Trichet Says ECB to Scale Back Emergency Loans

European Central Bank President Jean- Claude Trichet said the ECB will scale back its flagship emergency financing operations next year as the euro region starts an “uneven” recovery.

The improved conditions in financial markets have indicated that not all our liquidity measures are needed to the same extent as in the past,” Trichet said at a press conference in Frankfurt today. Liquidity will remain extremely abundant for a large number of months to come.”

The ECB will link the rate on the Dec. 15 tender of 12- month funds to the average of the ECB’s benchmark over the year, a departure from its current policy of offering the money at a fixed 1 percent. Trichet stressed the move isn’t a signal the ECB has decided to raise its main rate, which it left at 1 percent today. The current rate is appropriate,” he said.

The ECB has been flooding banks with cheap cash to fight Europe’s worst recession since World War II and revive lending among banks. As the economy recovers, policy makers are pulling back liquidity to prevent inflation and asset bubbles.

Trichet also said the supply of six-month loans will expire at the end of the first quarter. The ECB will continue to provide banks unlimited funds in its main refinancing operations at a fixed rate at least until April 13.

Referring to the euro’s exchange rate, he said it’s very important” that the U.S. has a strong” currency.

The euro has gained 18 percent against the dollar since the middle of February, threatening to slow the region’s recovery by hurting exporters.

Trichet Says ECB to Scale Back Emergency Loans, Bloomberg
12/3/2009 10:52:54 AM