ECB takes first step towards exit

By Marc Jones

FRANKFURT (Reuters) - The European Central Bank took its first step towards the exit from its crisis steps on Thursday by signalling one-year loans to banks will not be repeated next year.

The ECB kept its main interest rate on hold at 1 percent for the sixth month in a row and ECB President Jean-Claude Trichet promised to announce a decision on the central bank's cheap and abundant liquidity policy in December.

Its stance contrasts with the U.S. Federal Reserve's promise to keep rates near zero for an extended period and the Bank of England's extension of its quantitative easing programme, although at a slower pace.

However, other central banks, including Australia and Norway, have already raised rates -- a move the ECB is not expected to follow until the end of next year.

Allowing one-year lending to expire after the third such operation scheduled for December 16 would already be a step towards weaning banks off the funds which have pushed money market rates to record lows and helped rekindle credit flows.

Money borrowed at the two previous one-year liquidity operations accounts for 75 percent of the ECB's outstanding loans to banks.

Asked whether the ECB was ready to drop its one-year operations, Trichet noted that financial markets were not expecting the ECB to extend these next year.

"I will say nothing to dispel this present sentiment of the market," he told reporters. "But the decision will be taken by the Governing Council in the next meeting in a month's time."