THE EUROPEAN Central Bank said yesterday it was ready to take fresh action to calm financial market tensions, as Jean-Claude Trichet, its president, rejected suggestions its emergency liquidity injections were posing inflationary dangers.
With signs of stress re-emerging in euro-zone money markets as banks prepare their books for the end of the first quarter, the ECB said it was monitoring closely liquidity conditions and "stands ready to provide additional liquidity if needed".
The statement echoed ECB announcements made as global financial tensions erupted last August. Unlike then, no immediate action followed but the statement's tone suggested extra liquidity could be pumped into euro-zone money markets today as part of global efforts by central banks.
The ECB, which pumped in extra seven-day funds in its regular auction this week, will have been concerned at recent rises in money market interest rates, although it noted the "ample liquidity conditions".
"There is an underlying tension that has not disappeared and is exacerbated when you have to close the quarterly books," saidMarco Annunziata, economist at Unicredit.
The ECB's concern about the pressures facing euro-zone banks and the impact on the real economy appeared to have intensified since the US rescue of the Bear Stearns investment bank, Mr Annunziata added.
This week Mr Trichet warned of the "heightened uncertainties" facing the financial sector, telling the European Parliament that "in an environment where balance sheet conditions could unexpectedly change, vigilance is more than ever of the essence".
