European Central Bank President Jean-Claude Trichet said on Monday the bank can cut interest rates further but that its deposit rate was already at very low levels, and added it could use more non-conventional measures to help the troubled banking system.
As regards the future rate of our main refinancing operations, presently at 1.5 percent, I said clearly that we could decrease it again, Trichet said in an interview with the Wall Street Journal.
We will certainly continue to do whatever we think optimizes 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. This channel remains for us essential, he said.
Trichet said that when considering potential moves such as buying assets central banks had to maintain a clear distinction of responsibilities from governments.
As regards possible outright purchases of securities in general I said that we are not pre-committed for any new decisions.
One element which has to be taken into account is that the risks of the central banks and the risks of the governments are, in the euro area, clearly separated without combination of risks or blending of responsibilities, he said.
Trichet's comments come as the ECB becomes increasingly isolated among central banks as it has not yet moved beyond interest rate cuts onto other quantitative measures to boost the recession-hit euro zone.
The U.S. Federal Reserve and Bank of England said recently they would purchase some of their governments' bonds in a bid to pump more money into the system. Both the Fed and the BoE have already cut their rates to near zero, forcing them to look for other ways to stimulate their economies.
But 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.
But what counts are the interest rates that are in the market and that the public gets, he said, adding that euro zone six-month money market rates were below those in the United States.
He rebuffed criticism from some quarters that European governments were not going far enough to stimulate growth, which had become a significant sticking point with the United States.
He also said that decisions should be implemented quickly, and said that nothing would work until the financial sector was back on track and lending on a sustainable basis.
Trichet reiterated recent comments that the economy would see a gradual recovery during 2010.
The ECB has cut rates to a record low of 1.5 percent and has signaled it is prepared to go lower still, but most ECB policymakers have seemed reluctant to follow other leading central banks by cutting rates as low as possible.
(Reporting by Ben Deighton and Marc Jones; Editing by Kim Coghill)