Central banks ready to back the system, says Trichet

EUROPEAN Central Bank president Jean-Claude Trichet has said central bankers around the world are ready to support the banking system as the global economy slows.

“We don’t see a recession, not at all, but we see a slowing down in comparison with what has been observed,” Mr Trichet said.

Downside risks to the growth outlook have increased and “we stand ready to provide liquidity to banks as required”, Mr Trichet said. “It is a sentiment that we all expressed.”

Central bankers are trying to shield their economies from fiscal tightening and lopsided currency movements that threaten a new global recession, and G7 finance chiefs have vowed “a concerted effort” to support expansion.

Europe’s debt crisis, which has pushed Greece to the brink of default, is roiling financial markets, Asian growth is slowing and US expansion is being hampered by unemployment.

“We all agree that in the present circumstances we have to remain permanently alert and have to stand ready for any observation that we could make on the evolution of the situation,” Mr Trichet said. “We have the weaponry to provide what is necessary.”

The ECB is providing unlimited cash in its refinancing operations and last month reintroduced a six-month tender to fend off a liquidity shortage in financial markets.

Federal Reserve chairman Ben Bernanke said last week that US policymakers will this month discuss tools to boost the recovery.

Elsewhere, the Swiss National Bank recently imposed a ceiling on its franc after it soared to a record against the euro.

Central banks from Brazil, Canada, Sweden, Australia and the Czech Republic have indicated a willingness to keep monetary policy loose. Mr Trichet said there was “understanding” for the Swiss bank’s action among central bank chiefs.

Policymakers are “united in purpose” to “solidly anchor inflation expectations to guard against the risk of inflation and deflation, which is very important in the current circumstances”,

Mr Trichet said. “I don’t see that we can really say that advanced economies would go to a level of inflation that is close to zero.”

Renewed fears that European policymakers are failing to prevent a Greek default and contain their debt woes has prompted investors to sell stocks and push the euro to a seven-month low against the dollar. European bank and sovereign credit risk reached all-time highs as 10-year treasury and German bond yields fell to record lows.

“All Europeans, including the executive branch of Germany, are calling on the Greek government to fully deliver on its commitments,” Mr Trichet said.

“It is the superior interest of Greece and its people that we observe something that is satisfactory.”