European Central Bank council member Axel Weber said it should help banks through end-of-year liquidity tensions before deciding in the first quarter when to withdraw emergency lending measures.
"Most of these discussions about the continuation of the exit, I think, will be focused on the first quarter," Weber, who heads Germany's Bundesbank, said in an interview with Bloomberg Television in Frankfurt on Thursday. "It's clear that we need to reembark on a normalization procedure."
The euro dropped, and the yield on Germany's 30-year bond fell to a record low as Weber's comments suggested to the markets that the ECB will support the continent's banks for longer than some investors expected. Weber, the front-runner to succeed ECB President Jean-Claude Trichet next year, also said no inflation risk is in sight, indicating that interest rates may remain on hold for some time.
"The comments are rather dovish; he seems to be very cautious," said Juergen Michels, the chief euro-area economist at Citigroup Inc. in London. "I would have expected that he wanted to start the exit sooner."
The escalation of Europe's fiscal crisis in May forced the ECB to halt its withdrawal of support for the region's banks and reintroduce some tools, such as unlimited three-month loans.
Weber's comments on the need to keep open the flow of emergency funds go beyond what Trichet has announced so far.
Weber said it would be "wise" to keep full allotments in weekly, monthly and three-month refinancing operations until after yearend, which is "usually surrounded by some uncertainty regarding the liquidity situation."
Trichet has guaranteed unlimited seven-day loans, the main plank of ECB's emergency policy, until Oct. 12 and unlimited three-month loans until the end of September. He hasn't outlined the bank's timetable after that.
"His comments might perhaps be an irritation to Trichet, who always stresses his prerogative as ECB president to be the 'porte-parole' of the council," said Julian Callow, the chief European economist at Barclays Capital in London. Still, his "relatively conciliatory tone" may be "representing some positioning ahead of the determination next year of Trichet's successor as ECB President."
Weber, 53, said six-month loans should be allowed to expire and "I don't think it would be wise" to continue with these very long operations. Resuming the exit will depend on the "health of the financial system and the banking system," he added.
The comments indicated that the ECB is growing more confident that the euro region is coping with its sovereign debt crisis after Germany in the second quarter powered the 16-nation bloc to its fastest economic growth since 2006.
By contrast, the Federal Reserve this month was forced to announce fresh measures to shore up a stuttering U.S. economy.
Weber said the ECB is likely to raise its euro-region growth forecasts next month after the German economy, Europe's largest, expanded last quarter at the fastest pace since records for a reunified country began in 1991.