Central Bank President may raise interest rates before removing all non-standard policy measures

The European Central Bank President Jean-Claude Trichet said the bank may raise interest rates before removing all non-standard policy measures.

"We believe that we can determine the standard and nonstandard measures, largely independently," Trichet said at a conference in Frankfurt. "We believe that we are not obliged to remove non-standard measures before considering interest rate increases, we can do either or both."

The ECB has kept its benchmark interest rate at a historically low 1 percent from May 2009 to help the euro area economy through the global financial crisis. It has also introduced non-standard measures, such as unlimited loans to banks, which has left in place longer than initially planned after the sovereign debt crisis shook European financial markets. In May, the ECB began to buy government bonds.

"The ECB did not embark on unconventional measures because we believe that the scope for further reducing the quality of monetary policy have been exhausted," said Trichet. "Rather, our view was that non-standard measures are required to ensure that the orientation of monetary policy is transmitted effectively to the overall economy, despite the dysfunctional in some financial markets."

Setting interest rates "depends on the outlook for price stability," Trichet said, while the elimination of unconventional measures "depends on how well the monetary policy transmission through the financial system and markets financial statements. "

At the same time, Trichet said the non-standard measures are "temporary" in nature "to the extent that they have to be strictly proportional to the degree of dysfunctional markets."

"The central bank should avoid the danger that the necessary measures in a period of crisis would become a unit as the conditions of normalization," he said.