Screengrab of ECB President Jean-Claude Trichet (r) speaking at a press conference in Frankfurt, Sept 02, 2010.

European Central Bank President Jean-Claude Trichet today announced the extension of emergency lending measures for banks into 2011. He also announced an upward revision in economic forecasts for 2010 and 2011.

The ECB intends to keep offering banks unlimited one-week and one-month loans until at least Jan. 18th, Trichet said at a press conference in Frankfurt today. The ECB will also offer banks three-month loans in October, November and December at interest rates linked to the ECB’s average benchmark rate over the maturity of the loan.

The central bank is seeking to bolster the Eurozone recovery at a time when the US economy is facing headwinds with a faltering housing recovery and a drag of high unemployment. The governing council  had previously agreed to lend banks unlimited cash at the benchmark rate until at least Oct. 12th.

“We have to remain cautious and prudent -- we never declare victory,” Trichet said today. “Monetary policy will do all that is needed to maintain price stability in the euro area over the medium term.”

ECB staff raised their Eurozone growth forecasts for this year and next year with growth of between 1.4% and 1.8% in 2010 compared with 0.7-1.3% three months ago. It also lifted its forecast for next year to between 0.5% and 2.3%.

"Recent economic data for the euro area have been stronger than expected,” Trichet said. “Looking ahead, the recovery should proceed at a moderate pace, with uncertainty still prevailing.”

Trichet changed his language on inflation saying risks to prices are “slightly tilted to the upside” after terming them last month as “broadly balanced.” The ECB staff raised the inflation forecasts in a range between 1.5% and 1.7% for 2010 and between 1.2% and 2.2% for 2011. Compared with the projections of June 2010, the ranges have been revised slightly upwards, largely on account of higher commodity prices.

he Irish Government should continue with what he called 'the appropriate decisions they took to deal with the banking and financial crisis'.

Trichet said he was confident that the Irish Government would take appropriate action to deal with the escalating cost of the rescue of Anglo Irish Bank and he said responsibility lies in Dublin, as it is a state owned bank.

Introductory Statement

The European Central Bank left interest rates unchanged at 1.0%, as expected Thursday. Ian Stannard from BNP Paribas, Lothar Mentel, CIO of Octopus Investments, and Neil MacKinnon from VTB Capital discussed the outlook: