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Fri, Sep 07, 2007 - Page 10 News List

ECB pumps fresh cash into the banking sector

AFP , FRANKFURT

The European Central Bank (ECB) pumped fresh cash into the banking sector yesterday to ease fears of a global credit squeeze, as its directors sat down to decide whether to change eurozone interest rates.

In a "quick tender" that provided funds to commercial banks for one day, the ECB made 42.24 billion euros (US$57.4 billion) available at a marginal, or lowest, rate of 4.06 percent and a weighted average rate of 4.13 percent, the bank said.

That was only slightly lower than the 47 billion euros injected on Aug. 13 amid a global financial market storm that was sparked by a crisis in the US market for high-risk mortgages, also known as the subprime market.

On Wednesday, the bank had warned that markets were still volatile, and added: "Should this persist tomorrow [yesterday], the ECB stands ready to contribute to orderly conditions in the euro money market."

Meanwhile, ECB president Jean-Claude Trichet yesterday left the door open for further increases in eurozone interest rates, saying that the bank's monetary policy remained "on the accommodative side."

The ECB's interest rates "still remain on accommodative side," Trichet said after the bank held its benchmark "refi" refinancing rate steady at 4 percent.

The ECB chief promised that the bank, known as the guardian of the euro, would act "in a firm and timely manner" to ensure price stability in the 13-country zone.

The Frenchman insisted that there were still upside risks to price stability in the single currency area and that the growth outlook for the region remained "favorable."

Recent financial market turmoil has led to a high degree of uncertainty and the ECB will therefore monitor "very closely" all developments on the money markets, Trichet said.

Nevertheless, the ECB chief pointed to the fact that he had dropped the key word "strong vigilance" from his introductory remarks, a term traditionally interpreted as a signal of an imminent rate rise.

"I can't comment any further [on that]," Trichet said, adding that it was up to market players themselves to interpret such changes.

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