Financial markets have understood the European Central Bank's message that unwinding liquidity support is no signal on interest rates, ECB president Jean-Claude Trichet said in comments published today.
In an interview with Belgium's
De Tijdand
L'Echonewspapers, Mr Trichet said benchmark interest rates - now at 1 per cent - were appropriate and indexing the cost of funds in its last 12-month liquidity operation next week did not imply anything about the future policy path.
"The intention of the Governing Council was to give no signals at all on interest rates," he said, according to a transcript released in advance by the ECB.
"I believe that the market has understood this message well."
The ECB kept rates on hold last Thursday but announced plans to start phasing out the extra liquidity operations which have pumped billions of euros in extra funds into the financial system since last October. Analysts expect rates to remain on hold until the last quarter of 2010.
Mr Trichet said the ECB expected positive but moderate growth in the 16-nation euro zone next year, and it was normal for the recovery to take time.
"In a cycle such as this, the decline is often much steeper than the recovery, which is slower."
The ECB head also repeated his support for a strong dollar, saying it was important that US authorities saw a strong currency in their interests.
"A strong dollar vis-a-vis the large floating currencies is also in the interest of the stability and prosperity of the global economy."
The ECB had a very close relationship with the US Federal Reserve and Mr Trichet backed Fed Chairman Ben Bernanke in his warnings to US lawmakers, who are considering stripping the Fed of its power to regulate banks.
"I would be amazed if the current debate in the United States were to lead to a Federal Reserve System that no longer had a close link with micro-prudential supervision, since this does not appear to me to be the lesson that should be drawn from the crisis at all," he said.
The ECB has no direct power for banking supervision, although it will play a key role in the proposed European macroprudential overseer, the European Systemic Risk Board, if plans are finalised by EU policymakers.
Mr Trichet said it was important for banks to strengthen their balance sheets, by raising capital on markets or by retaining their profits as reserves instead of paying them out.
"I believe, moreover, that a very high degree of caution should be demonstrated with regard to remuneration and the awarding of bonuses - both for ethical reasons, to avoid excessive risk-taking, and for reasons related to the need for banks to have sound finances."
Asked about Greece, where deteriorating public finances prompted Fitch Ratings to downgrade the country's debt to BBB+ on Tuesday, he said he would only repeat what he told the European Parliament on Monday.
"Given the severity of the situation, I am confident that the Greek government will take the necessary and courageous measures in the near future."