European Central Bank President Jean-Claude Trichet on Sunday signaled the bank's likely next move, saying it could cut its headline interest rate but only by an additional 25 basis points.

Trichet is currently on a trip to Japan. In an interview with Kyodo news agency he said any additional cut would be a very measured one.

In an interview with Yomiuri newspaper, Trichet said: I said I did not exclude that we could decrease rates by a very measured pace.

I said: today we had decreased rates by 25 basis points. It's a measured pace. Therefore it is the scale of a possible future move.

Kyodo also quoted Trichet as repeating the view that slashing rates to zero was not at all appropriate in the euro zone.

He also reiterated that the bank would not lower its overnight deposit rate -- the rate steering all-important money market rates -- from its current level of 0.25 percent.

The ECB's benchmark interest rate now stands at an all-time low of 1.25 percent. It has lowered it by 3 percentage points since October and analysts expect it to make one final 25 basis points cut to 1.0 percent in May. (For latest Reuters poll of analysts please click )

Even though the euro area is struggling with the worst recession since the creation of the single currency, the ECB has repeatedly ruled out cutting rates to zero. A number of top ECB policymakers have said they are equally reluctant to take them below 1 percent as it would risk paralyzing money markets and send the wrong signal.

The ECB's main rate remains higher than its peers. The U.S. Federal Reserve's target policy rate is between zero and 0.25 percent. The Bank of Japan's is 0.1 percent and the Bank of England's 0.5 percent.

However ECB members point out that the bank's tactic of flooding money markets with extra funding have helped push all-important interbank rates down to levels parallel with elsewhere.


In another interview with Jiji Press, Trichet touched on the troubles being experienced by some eastern and central European countries, urging banks that have lent in the region to keep lending.

The message that we are giving to the banks in the euro area is that they have responsibilities in those countries where they have subsidiaries or interest, and we recommend them to continue to be as responsible as possible, he said, according to an English language transcript seen by Reuters.

At the same time he said that there were safety nets in place to help countries being crippled by the crisis. We have the capacity and we do that in the European Union, to help those countries that are in difficulties.

We have observed currencies of a number of emerging economies were under pressure for understandable reasons, after the intensification of the crisis.

In yet another interview he also warned against reading too much into recent glimmers of hope in data indicators.

With respect to 2009, let's be prepared for having a very difficult year, he said in a transcript of interview with Japanese newspaper Mainichi.

As is always observed, in the course of the year, you have ups and downs: a mixture of better indicators and worse ones. Therefore, I would not over emphasize whatever we are observing, and would not draw definitive conclusions from the various indicators whether up or down.


In recent weeks Trichet has often said that he expects to see a moderate recovery next year. But small signs of improvements in some data and a slight rise in optimism from bellwether firms such as U.S. giant GE have stoked hope among economists.

The ECB chief also said he thought authorities had now come up with enough measures to ensure a recovery.

I think that what has been decided in principle is appropriate. This is also true for fiscal activation, he told Mainichi.

Rapid disbursement of the money, which has already been committed, is essential for confidence. In this domain, I would say don't pile up new decisions, but execute what has already been decided.

(Reporting by Marc Jones; Editing by David Cowell)