(Adds detail, Liikanen, analyst quotes)
By Marc Jones
FRANKFURT, Feb 6 (Reuters) - The European Central Bank would still have other options to boost the economy even if it cut rates to zero, President Jean-Claude Trichet said on Friday, as analysts turned their attention to possible alternative steps.
The ECB left interest rates at 2.0 percent on Thursday but Trichet signalled a cut in March and appeared to warm to the idea of unconventional monetary policy tactics already in use at other major central banks.
While Trichet said the ECB did not want to cut rates as low as zero, as the U.S. Federal Reserve has done with a target of 0-0.25 percent, analysts noted a softening in his tone and began to question how long the ECB could hold off from cutting rates to the bone.
Trichet said that even if rates were cut to zero, policymakers still had other possible options available to them.
"One would argue that when you are at that level (zero rates) you have other instruments that you could utilise," he told Dutch television station RTL Z. "But there are a number of other aspects of the zero position which we consider sufficiently full of drawbacks to try to avoid."
At Thursday's news conference Trichet said he did not "exclude other possible non-standard measures", but stopped well short of saying the ECB would follow other central banks into direct asset purchases.
Another ECB policymaker, Erkki Liikanen, bolstered expectations that interest rates would be cut to a new all-time low of 1.5 percent next month.
"As the markets have correctly interpreted, at the next meeting a rate cut is possible," Liikanen, who heads the Bank of Finland, said on Finnish television broadcaster MTV3. "The ECB's main task is to keep inflation around or under two percent, and this is quite well under control, so we have room to use monetary policy for other purposes."
KEY CHANGE
Trichet's comments showed that zero rates are not an option for now. But analysts believe the ECB is starting to come around to the idea of unconventional monetary policy moves, such as buying up company or government debt, as an alternative way to inject cash into the struggling economy.
"Yesterday's press conference sets the stage for the ECB to move further in the direction of 'non-standard' measures," said Barclays Capital economist Julian Callow. "While it remains to be seen what those will be, Mr Trichet's comments seemed to suggest he has something up his sleeve."
UniCredit chief economist, Marco Annunziata struck a similar tone. "Most importantly and surprisingly, a Zero Interest Rate Policy has suddenly flashed on the ECB's radar screen of policy options," he said.
"Moreover, it seems that the Governing Council is carefully considering the scope for quantitative easing measures that might include direct purchases of sovereign and corporate bonds."
European laws prevent the ECB from buying debt directly from governments. However, it has a swathe of other options available to it, including buying government debt second-hand from banks or buying up shares or bonds straight from euro zone companies.
But analysts warn that any ECB decision on such measures would be fraught with risk.
It would have to make the difficult decision of which countries' debt, or companies' stock, to buy and with 16 governments all monitoring its moves closely, the decisions are likely to have political consequences.
The ECB also released details of its latest survey of euro zone banks on Friday, showing that they toughened credit conditions at the end of 2008 and expected to continue tightening into 2009, although at a slower pace.
(Reporting by Marc Jones; editing by David Stamp)