* ECB could cut benchmark rates, boost bank liquidity
* Trichet: could focus extra steps on banking channel
* Responsibilities of cbanks, govts should not be blurred
(Adds comments from Weber, Orphanides, details)
LONDON, March 23 (Reuters) - The European Central Bank can cut interest rates further and may also announce extra steps to boost liquidity to banks, policymakers said on Monday.
ECB President Jean-Claude Trichet said the ECB was likely to keep its focus on banks as an alternative channel for boosting economic growth, in addition to cutting rates.
Although the ECB was still keeping open the option of direct asset purchases -- as other central banks are doing -- he gave no hint that this was likely in the near term.
"We will certainly continue to do whatever we think optimises our own situation. In the next decisions that we could take, it's pretty possible that we would continue to be non-conventional through the channel of bank financing. This channel remains for us essential," he said in an interview with the Wall St Journal.
Cyprus central bank governor Athanasios Orphanides said one of the ECB's options would be to offer banks liquidity for 12 months, double the current maximum period for the ECB's loans to banks.
"There is within the family of non-conventional measures, (a mechanism) to give liquidity for longer periods of time, for example it was said to be for six months, but could go to one year in a first stage," he told journalists in Nicosia.
"This is one of the ways we could consider to extend the existing non-conventional measures."
Germany's Axel Weber said on Friday there were benefits in offering banks liquidity for longer periods, prompting speculation that the ECB could decide such a move as early as next week.
Trichet, Weber and Orphanides also bolstered market expectations of a 50 basis point cut to 1 percent at the April 2 meeting by noting there was still room for more easing from the current record low of 1.5 percent.
"As regards the future rate of our main refinancing operations, presently at 1.5 percent, I said clearly that we could decrease it again," Trichet said.
But he added the ECB's overnight deposit rate, now at 0.5 percent, was already at a "very, very low level". Although the ECB normally sets this rate 100 basis points below its main refi rate, it could narrow the gap again as it did late last year.
Weber has already said he would prefer the overnight deposit rate to go no lower than 0.5 percent.
DRAWBACKS IN ZERO RATES
Even if the ECB does cut the benchmark rate to 1 percent, benchmark credit costs will still be higher than in many other developed economies. Both the U.S. Federal Reserve and Bank of England have cut rates to near zero and are buying government bonds in a bid to pump more money into the system.
But Trichet maintained a reluctance to see the ECB's interest rates fall to zero.
"There are a number of drawbacks associated with policy rates deliberately put at a zero level by the decision of the central banks. That's the reason we do not think it would be appropriate.
"But what counts are the interest rates that are in the market and that the public gets," he said, adding that euro zone six-month money market rates were below those in the United States.
In a speech in Berlin, Weber said the ECB should be ready to tighten credit costs again once the financial sector was back on its feet.
"It is essential to bear in mind that an expansionary monetary policy comes at the price of creating a breeding ground for future risks to price stability," he said.
Trichet also said that when considering potential moves such as buying assets, central banks had to maintain a clear distinction of responsibilities from governments.
"As regards possible outright purchases of securities in general, I said that we are not pre-committed for any new decisions.
"One element which has to be taken into account is that the risks of the central banks and the risks of the governments are, in the euro area, clearly separated without combination of risks or blending of responsibilities," he said.
He rebuffed criticism from some quarters that European governments were not going far enough to stimulate growth, which had become a significant sticking point with the United States.
He also said that decisions should be implemented quickly, and said that nothing would work until the financial sector was back on track and lending on a sustainable basis.
Trichet reiterated recent comments that the economy would see a gradual recovery during 2010.
For highlights from Trichet's WSJ interview, see:
http://www.ecb.int/press/key/date/2009/html/sp090323.en.html (Reporting by Ben Deighton and Marc Jones; Editing by Ron Askew and Andy Bruce)