Trichet's last pitch...ECB offers emergency support to banks

The European Central Bank offered new emergency loans to banks on Thursday to help them through the turmoil of the continent's government debt crisis, but decided against an interest rate cut despite mounting fears of another recession.

Bank president Jean-Claude Trichet, holding his last news conference before retiring at month's end, did not even indicate that a rate cut was possible at the next month's meeting.

Many economists have predicted the bank will have to cut its key refinancing rate from 1.5 per cent in coming months to stave off a rapid economic downturn.

But if the ECB keeps to its habit of signalling moves at least a month ahead of time, that would mean no cut before December at the earliest.

"The economic outlook remains subject to particularly high uncertainty and intensified downside risks," Trichet said, adding however that "at the same time interest rates remain low."

To avoid a new credit crunch like the one that cut off credit to businesses and plunged the world economy into its sharpest recession since World War II, the ECB decided to flood the financial system with all the loans it needs.

The bank will offer an unlimited amount of 12-month and 13-month loans to banks. That will provide banks financing for a longer period - into 2013 in the case of the 13-month offering - and shield them from turbulence in borrowing markets.

The ECB will also keep offering unlimited amounts of credit at its shorter-term lending operations of up to three months through the first half of next year.

Many European banks are exposed to losses on Greek debt. That has made borrowing between banks, crucial for their daily functioning, increasingly difficult because of fears the money might not be repaid.

Trichet said the ECB would also buy up to €40 billion (US$53 billion) in covered bonds, a type of security used by banks to raise funding. The ECB's presence will help free up that credit market and make borrowing easier for banks.

The bank's caution to not boost growth contrasted with the Bank of England's decision earlier Thursday to buy another £75 billion (US$116 billion) in securities from banks, a step which expands the supply of money in the economy and can promote economic activity.

That makes the Bank of England the first major central bank to move to counterract the slide in global growth that has intensified since this summer.

The ECB has maintained throughout the crisis that its unconventional measures such as extra credits are kept in a separate track from interest rate policy, and Thursday's decisions continued that stance.

Trichet said that the 23-member rate-setting council made its interest rate decision by consensus, not by unanimity, suggesting not everyone agreed.