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Last Updated: Monday, 7 January 2008, 13:52 GMT
Central banks hail credit easing
ECB chief Jean-Claude Trichet
The ECB makes its next interest rate decision on Thursday
European Central Bank (ECB) chief Jean-Claude Trichet is "very satisfied" with central banks' co-ordinated action to help banks hit by the credit crunch.

The Federal Reserve, the ECB and central banks from the UK, Canada and Switzerland injected billions to calm money markets in December.

Mr Trichet was speaking in his capacity as the current head of the G-10 group of central bank governors.

He said global economic growth was "robust" but inflation risks remain.

"We see growth continuing at a pace which is quite robust even if there is a little bit of slowing down."

Mr Trichet stressed that there are still real risks to the global economy.

"To sum up our analysis, I would say no complacency as regards to inflation and no complacency with regards to the question of the significant correction in the markets," he said.

Central banks are faced with the dilemma of wanting to cut interest rates to spur growth but they fear lower rates will ignite inflation, already pressured by factors such as the rising cost of oil.

The ECB meets on Thursday to decide whether to cut interest rates. It has so far resisted the temptation to cut the cost of borrowing, unlike the Federal Reserve, Bank of England and Bank of Canada.

Credit help

Five central banks teamed up to make cash available in December to private banks hit by the credit crunch.

As a result, the rates that banks charge to lend to each other in the short-term fell substantially.

"The measures that have been taken by various central banks to cope with the tensions on the money markets proved efficient technically," Mr Trichet said.

"We certainly were reassured to see that the end of the year had passed in a way which had been relatively smooth."

The credit crunch stemmed from record default levels in US sub-prime mortgages.

Many banks worldwide held debt based on US mortgages, some of them of questionable value. This created uncertainty as how much money they could afford to lend to other banks and also about which banks were creditworthy.

The G-10 central bankers have been meeting as part of the Bank for International Settlements monthly meeting in Basel, Switzerland.



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