EUROPEAN CENTRAL BANK:THE EUROPEAN Central Bank can cut interest rates further and may also announce extra steps to boost liquidity to banks.

ECB president Jean-Claude Trichet said the ECB was likely to keep its focus on banks as an alternative channel for boosting economic growth, in addition to cutting rates.

Although the ECB was still keeping open the option of direct asset purchases – as other central banks are doing – he gave no hint this was likely in the near term.

"We will certainly continue to do whatever we think optimises our own situation. In the next decisions that we could take, it's pretty possible that we would continue to be non-conventional through the channel of bank financing," he said in an interview with the Wall Street Journal.

Cyprus central bank governor Athanasios Orphanides said one of the ECB’s options would be to offer banks liquidity for 12 months, double the current maximum period for the ECB’s loans to banks.

“There is within the family of non-conventional measures [a mechanism] to give liquidity for longer periods of time, for example it was said to be for six months, but could go to one year in a first stage,” he told journalists in Nicosia. “This is one of the ways we could consider to extend the existing non-conventional measures.”

Mr Trichet and Mr Orphanides also bolstered market expectations of a 50 basis point cut to 1 per cent at the April 2nd meeting by noting there was still room for more easing from the current record low of 1.5 per cent.

“As regards the future rate of our main refinancing operations, presently at 1.5 per cent, I said clearly that we could decrease it again,” Mr Trichet said.

But he added the ECB’s overnight deposit rate, now at 0.5 per cent, was already at a “very, very low level”. Although the ECB normally sets this rate 100 basis points below its main refi rate, it could narrow the gap again as it did late last year.

Even if the ECB does cut the benchmark rate to 1 per cent, benchmark credit costs will still be higher than in many other developed economies.

But Mr Trichet maintained a reluctance to see the ECB’s interest rates fall to zero. “There are a number of drawbacks associated with policy rates deliberately put at a zero level by the decision of the central banks. That’s the reason we do not think it would be appropriate.” – (Reuters)