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By Stanley White
TOKYO, April 18 (Reuters) - ECB President Jean-Claude Trichet said the bank must guard against inflation as it prepares to use unconventional policies to contain the financial crisis, although he left the door open to another interest rate cut.
Trichet did not give details of the unconventional policy response, due to be unveiled on May 7, and dismissed any suggestion that European Central Bank policymakers were divided over how far the ECB should go.
"When we make a decision on non-standard measures on May 7, we will explain it to the markets and to investors," he said in Tokyo on Saturday.
Trichet made the risk of inflation the focus of his remarks on the unconventional policy response, saying confidence would not be restored without a strategy to reverse these measures.
"We have to anchor inflation expectations with our definition of price stability. Europeans can look to us as an anchor and have confidence, because we have delivered price stability," he said in a speech.
With the global economy in its worst downturn in decades, inflation is slowing around the world but some investors are worried that huge cash injections by the world's central banks could spark inflation in the future.
Economists are now busy speculating whether the ECB will follow the U.S. Federal Reserve, the Bank of England and the Bank of Japan down the path of asset purchases to revive lending and confidence shattered by bank failures and economic meltdown.
NO SPLIT
A steady trickle of hints from policymakers over the past weeks suggests the ECB could extend the time horizon over which it lends banks funds to 12 months from 6 months currently.
ECB Governing Council member Axel Weber said on April 15 that bolder steps such as buying company debt from banks should not take priority over easing refinancing by banks. In contrast, Vice-President Lucas Papademos said last month that buying private sector bonds or debt securities was a potential option for the ECB to boost liquidity.
Trichet said comments such as these did not mean the governing council was divided.
"There is no split on the ECB. I warn you against over-interpreting what my colleagues, whom I know well, say," he said.
Trichet said on Friday banks would be the focus of any unconventional ECB response to the crisis.
In the United States, Britain and Japan, central bank responses to the crisis triggered by U.S. mortgage defaults in 2007 have included purchases of bank and government debt. These central banks have also taken rates to zero or close to zero.
"I cannot exclude a further measured decline in the ECB's benchmark rate," Trichet said, echoing a line he had made on April 3. "I can also say that zero interest rates are not appropriate for the ECB."
The ECB has reduced its benchmark rate by 3 percentage points since October and is expected to cut by another 25 basis points to 1.0 percent in May as the euro zone struggles in its worst recession since the currency was created.
Despite the downward economic spiral, the ECB has repeatedly ruled out cutting rates to zero, and has kept rates higher than its peers. The U.S. Federal Reserve's target policy rate is between zero and 0.25 percent. The Bank of Japan's is 0.1 percent and the Bank of England's 0.5 percent. (Editing by Dayan Candappa and Jeremy Laurence)