UPDATE 1-ECB’s Stark eyes end to loose monetary policy-report

* Strength of economy will determine exit-Stark

* Comments in line with previous ECB remarks

(Adds quote, background)

BERLIN, May 29 (BestGrowthStock) – The European Central Bank could
begin exiting its phase of loose monetary policy from July, ECB
Executive Board Member Juergen Stark was quoted as saying by
German weekly magazine WirtschaftsWoche on Saturday.

“At the start of July the banks in the euro zone must return
442 billion euros to the ECB which it had lent them for a year,”
he said. “That would be a possible start for the gradual exit,
whereby we’ll smooth the transition,” he added.

Whether it came to this would depend both on the economic
recovery and how the money supply behaved, he said.

“The global crisis is not over yet, on the contrary, we’re
still right in the midst of a new critical phase,” Stark added,
noting that “the danger has not yet passed that banks might
start not to trust each other and to not lend each other money.

The Frankfurt-based ECB’s main lending rate is currently at
a record low of 1 percent.

Dirk Schumacher, an economist at Goldman Sachs, said Stark’s
comments did not point to any switch in policy, and hence did
not appear likely to prompt any significant market reaction.

“The ECB had already announced in March it was not going to
renew the one year tender to banks,” Schumacher said. “But
because it’s still doing the three- and six-month tenders, this
will not actually alter the liquidity situation.”

The crisis over euro zone debt levels had already pushed
back the date at which the ECB would begin raising interest
rates again, Schumacher added. This was unlikely to take place
before the second quarter of 2011, he said.

In February, the U.S. Federal Reserve raised the interest
rate it charges banks for emergency loans to 0.75 percent from
0.50 percent, its first rate move since the end of 2008.

The Fed on Friday announced plans to test a new facility it
could use to withdraw some of the extraordinary stimulus it
pumped into the economy during the recession, but stressed it
was not embarking on a tightening of monetary policy yet.

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(Reporting by Dave Graham; editing by Jason Webb)

UPDATE 1-ECB’s Stark eyes end to loose monetary policy-report