The European Central Bank is focussed on ensuring past interest rate cuts work through to the real economy and banks must do their part in making sure lending rates fall, ECB policymakers said.
ECB President Jean-Claude Trichet said the central bank was considering cutting the rate it pays banks on overnight deposits, one option to encourage institutions to lend amongst themselves and put downward pressure on market interest rates.
Speaking to the International Club for Frankfurt Business Journalists yesterday evening, he declined to comment on whether the ECB would cut official interest rates again in January, as analysts expect, after a record 75 basis point cut in December.
Mr Trichet stuck closely to comments he made at his news conference on December 4th after the ECB's last rate cut, repeating that the ECB thought there was a limit to how far it could decrease rates and was aware of a risk of being trapped at too-low nominal rate levels, but was not pre-committed to any action.
"I am the porte parole (spokesman) of the Governing Council," he said in comments approved for release today.
"I said we consider at this stage it's important that we ensure that the 175 basis point decrease ... is effective in going through various channels into the real economy."
"We have to concentrate on getting what we have already decided operational."
He urged banks to do their part in passing on rate cuts. Asked whether the ECB would have meaningful information about the impact of past rate cuts in January or not until February, he said: "I have nothing else to say, absolutely nothing."
Benchmark ECB rates are at 2.5 per cent, the highest in the Group of Seven developed economies, although they have been cut from 4.25 per cent since early October. The US Federal Reserve is expected to cut rates close to zero later today and may point to further unconventional steps to battle recession.
Financial Stability Forum chairman Mario Draghi, who also sits on the ECB's Governing Council, said the effectiveness of central bank actions was largely dependent on financial intermediaries, such as banks.
Unconventional measures such as quantitative easing, or direct asset purchases, could be very effective in boosting the economy, but also had their limitations.
Reuters