“One measure we may take to reduce uncertainty is to extend the maturity of the central bank lending to other banks,” Papademos said. The ECB currently offers banks loans at its benchmark rate of 1.5 percent for up to six months. Papademos said it may also “be warranted that the central bank purchases private-sector bonds in the secondary market in order to enhance liquidity and in order to improve the cost of funding.”

The Frankfurt-based ECB is under increasing pressure to outline a strategy for how it will counter the worst recession since World War II once it runs out of room to lower interest rates. The U.S. Federal Reserve, Bank of England and Bank of Japan have all lowered their key rates to close to zero and said they will buy government bonds.

Click here to read the full article