STANFORD, California (MNI) - A delayed withdrawal of European Central Bank measures used to boost lending during the financial crisis would distort market behaviour and lead to a misallocation of credit, European Central Bank President Jean-Claude Trichet said on Friday.

The ECB considers the current pace of withdrawal "appropriate," he added.

"We do not wish to breed dependency. Banks might become dependent on today's very favourable access to central bank refinancing to such an extent that their incentives to repair their balance sheets remain weak," Trichet said in the text of a speech delivered at the Economic Summit of the Stanford Institute of Economic Policy Research in Stanford, California.

In a bid to stave off the worst of the recession and boost financial market confidence, the ECB slashed interest rates to 1% and undertook a number of non-standard lending procedures designed to boost liquidity in the Eurozone banking sector and stimulate lending.

As market conditions return to normal and the Eurozone economy recovers, the ECB faces the challenge of how and when to withdraw its liquidity stimulus measures. The question of timing is key.

Trichet said current market conditions are "what motivate and guide a gradual phasing-out process."

The speed and path of the phasing out, he said "will depend on developments in financial markets and the economy."

"We are convinced that a delayed exit from extraordinary liquidity support would distort market behaviour and misallocate credit," Trichet said.

He recalled that the ECB started to phase out its credit-support measures in December 2009, "in an environment of improving financial market conditions and emerging signs of recovery."

"On 4 March we came to the conclusion that the current pace of phasing-out is appropriate," he said. "Overall conditions in the markets for capital have improved greatly from the autumn 2008 paralysis."

Trichet added: "The functioning of money markets is now comparable with the conditions that prevailed in the third quarter of 2007."

The ECB head said money market spreads are now "close to levels that are reasonable to view as normal after the equilibrium re-pricing of risk that was needed and is likely to have taken place since then."

The ECB, Trichet said, "has relatively little reason to change fundamentally what has served our monetary policy well, both in normal and crisis times."

"As regards the monetary policy stance itself, it will be designed as always to deliver price stability, in the medium and long term, in line with our definition," he added.

The ECB targets an annual inflation rate of just below 2% over the medium term.

The ECB President said that short-term confidence "has been restored" by policy actions around the globe.

"Going forward, we need to strengthen longer-term confidence, and this requires policy frameworks that will help to prevent a future crisis," he said.