Central banks achieving their goals: ECB's Quaden

BRUSSELS (Reuters) - Exceptional measures taken by central banks to combat the economic crisis appear to be working but any early exit may risk a relapse, European Central Bank Governing Council member Guy Quaden said on Monday.

In a speech to a Belgian financial conference, Quaden said short-term steps introduced to counteract the crisis needed to be unwound at the right time and pace, saying there was no pre-defined sequence in which the unwinding should take place.

"Crisis prevention will soon have to take over from crisis management," he said.

"This will require both a timely exit from the exceptional measures taken to stabilize the financial system and the economy, and the implementation of fundamental reforms to remedy the structural defects exposed by the crisis."

The timing of the exit would depend on financial market developments and conditions in the real economy, he said.

Too early an exit from such an accommodative monetary policy stance would risk a relapse, he said, with the potential for renewed problems in the financial sector and damage to the real economy, including a threat of deflation.

"Too late an exit would sow the seeds for new financial excesses, with a risk of inflation," he said.

"The sequencing of the exit is not pre-defined, nor is its end-point, and will depend on developments in financial markets and in the real economy."

In terms of exit strategies, Quaden said he could envisage the gradual phasing-out of non-standard measures first, "like a discontinuation of one-year refinancing operations or a lower frequency for three-month and six-month refinancing operations."

Economists expect that despite signs of economic recovery, the ECB will keep interest rates at a record-low 1 percent until late 2010 because inflation is low and inflation expectations are anchored at the central bank's price stability target.

(Reporting by Antonia van de Velde; writing by Luke Baker; editing by Dale Hudson)