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UPDATE 2-ECB in exit mode from crisis measures -policymakers
* Stark, Mersch say ECB still in exit mode
* Comments put pressure on interest rate futures
* Banks prepare for bumper loan repayment
* Makuch says no reason to change exit strategy
By Alexandra Hudson and Marc Jones
ISTANBUL/FRANKFURT, Sept 28 (Reuters) - The European Central Bank is still in the process of phasing out its emergency lending measures, policymakers said on Tuesday, despite a recent extension of the central bank's liquidity lifelines.
ECB Executive Board member Juergen Stark said the ECB had already decided not to renew some of its liquidity support past the end of the year, when the next decision on the supply of funds is due.
"We are in the process of phasing out the non-standard measures. This week and in the fourth quarter 2010 a number of non-standard measures will mature and they will not be renewed," Stark said on the sidelines of a conference hosted by the Turkish central bank in Istanbul.
"We are in this process and what we will decide for the time after the time of Dec. 31 is up to a forthcoming meeting."
Bund and interest rate futures fell on his comments as traders bet on higher credit costs, with Stark's hawkish tone mirrored by Luxembourg colleague Yves Mersch.
"We had slightly hawkish comments from the ECB by Stark on the non-standard measures ... he is known as a hawk but it's still significant and is putting pressure on the front end," one bond trader said. [ID:nLDE68R0W8]
The most actively traded March Euribor futures contract FEIH1 fell as much as 2.5 basis points to 98.900, implying a Euribor rate of 1.1 percent by the end of March next year.
The three-month Euribor fixed at 0.88 percent on Tuesday.
The ECB is allowing very long-term loans of up to 12 months to expire and replacing them with shorter-term operations, although liquidity supplies are currently still ample.
The ECB this month renewed its policy of lending banks unlimited funds for up to three months into January 2011, but has made it clear it wants to resume its gradual exit from emergency loans at some point.
Slovakia's Jozef Makuch, one of the ECB's Governing Council members, said he saw no need to tweak the bank's strategy.
"We see no reason to change the exit strategy, and there is no such discussion," Makuch said in Bratislava, and added he did not expect to see any problems in the financial markets when the ECB's 12-months loans expire later this year.
Luxembourg's Mersch said signs that the euro zone's recovery is becoming self-sustainable meant the ECB could continue to gradually normalise monetary policy and withdraw lending support.
"I am confident that the positive underlying momentum is increasingly broader-based and signals a self-sustaining recovery in the euro area," he said in the text of a speech given in Shanghai.
"In my view, therefore inside the euro area the gradual pace of adjustment of the monetary policy stance, of the overall provision of liquidity and of its allotment modes can continue."
Banks are preparing to repay 225 billion euros of 12-, six- and three-month funds to the ECB on Sept. 30 -- more than a third of outstanding ECB lending -- although traders polled by Reuters expect banks to reborrow 90 percent of the funds over six days and three months.
There are some signs that two years of generous liquidity supply are starting to feed through to the real economy, with data on Monday showing growth in loans to firms and households at its fastest in 14 months.
Stark said: "We have very likely seen a turning point to positive credit growth and this is a positive sign. We have to be prudent in assessing the numbers."
Speaking in Helsinki, Finland's Erkki Liikanen, another ECB Governing Council member, said that the bank's monetary policy stance was supportive of growth and that its key policy rates were appropriate.
"As a result of the crisis, many other advanced economies are also facing the prospect of a lower growth trajectory than they were used to before the recession," Liikanen said in the Bank of Finland's latest economic outlook.
The ECB is expected to leave interest rates on hold at a record low 1.0 percent next week, and analysts see no change until late 2011. [ECB/INT]
News agency MNI reported that Mersch told a briefing in Shanghai that the economic recovery had gained momentum since the financial crisis, which had also slashed inflation.
"We will see inflation will be around 1.5 percent or maybe slightly higher in the years to come," Mersch said.
The ECB aims to keep inflation below but close to 2 percent. (Additional reporting by Martin Santa in Bratislava and Terhi Kinnunen in Helsinki, writing by Krista Hughes, editing by Hugh Lawson)
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