Hamburg - A senior European Central Bank (ECB) warned Wednesday that cutting interest rates below 1 per cent could severely hit money markets and result in lending between banks freezing up.

In a speech delivered in Hamburg, Axel Weber, the president of Germany's influential central bank the Bundesbank, said that trimming rates in the 15-member eurozone to below 1 per cent could mean banks lending with each other would become "completely paralyzed." Weber is also a member of the ECB's governing council.

The Frankfurt-based ECB reduced its key refinancing rate to 1.25 per cent earlier this month with ECB chief Jean-Claude Trichet signalling that the bank could cut again possibly as early as next month in the face of dwindling inflation and the global recession.

While Weber also indicated that he believed the ECB had room to trim borrowing costs again, he said in his speech he was "critical" of reducing the refinancing rate below 1 per cent saying this would remove the catalyst for interbank lending.

Trichet has consistently ruled out zero interest rates for the eurozone, with the ECB considering following up moves by the world's other leading central banks to use non-standing measures to help spur economic growth. (dpa)