Trichet Says ECB to Cut Back Emergency Loans as Growth Recovers

By Christian Vits and Simone Meier
Dec. 3 (Bloomberg) -- 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 tie the rate on the Dec. 15 tender of 12-month funds to market demand, a departure from its current policy of offering the money at the ECB’s benchmark rate. Trichet stressed that the moves shouldn’t be seen as a signal the ECB has yet 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.
The euro traded at $1.5105 at 3:09 p.m. in Frankfurt, compared with $1.5122 before the briefing. The yield on the benchmark two-year German government bond, which fluctuated immediately after Trichet’s comments, was little changed at
1.332 percent.
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 operation at a fixed rate at least until April 13.