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ECB watching excess liquidity closely - Liikanen

Bank of Finland Governor Erkki Liikanen speaks during a press briefing on the release of the latest issue of the Euro & talous (Euro and Economy) journal in Helsinki, Finland March 15, 2012. UTERS/Lehtikuva/Antti Aimo-Koivisto

HELSINKI (Reuters) - The European Central Bank will pay particular attention to changes in excess liquidity in the banking sector as it seeks to keep a lid on money market interest rates, Governing Council member Erkki Liikanen said on Tuesday.

In a report by the Bank of Finland, of which he is Governor, Liikanen reiterated the ECB's pledge to keep interest rates low for a long time to come to support a still fragile euro area economy.

"The key ECB interest rates will remain at present or lower levels for an extended period of time," Liikanen said .

"The Governing Council will also remain particularly attentive to the implications that changes in excess liquidity may have for the stance of monetary policy."

The ECB has emphasised its determination to keep a lid on market rates at its September meeting after a rise in such borrowing costs raised doubts over the ECB's promise of a long period of low rates.

The Bank of Finland said it expects inflation in the top 20 EU countries to be around 1.3 percent at the end of the year, and slightly over 1.5 percent in 2015, levels allowing the region's central banks to maintain easy monetary policy.

The Bank of Finland said the global economic outlook was no longer deteriorating, but growth was sluggish. It also said the transmission of the ECB's accommodative monetary policy was "uneven" in the euro zone.

"In the countries that have suffered most from the crisis the level of output is still modest," Liikanen said.

(Reporting by Ritsuko Ando and Terhi Kinnunen; editing by Patrick Graham)