March 28 (Bloomberg) -- The European Central Bank, struggling to ease gridlock in credit markets, will lend six-month money for the first time even as policy makers warned higher interest rates may be needed to combat inflation.

The ECB said it will auction 50 billion euros ($79 billion) in emergency six-month funds to support ``the normalization of the functioning of the euro money market.'' At the same time, council members Axel Weber and Juergen Stark said Europe's economy is coping with the jump in global credit costs and the central bank may need to raise its benchmark interest rate to fight inflation.

The ECB's twin-track approach contrasts with the Federal Reserve's response to the credit crisis. In addition to emergency liquidity injections, the U.S. central bank has cut its main rate by the most in two decades to prevent the economy slipping into recession. The danger for Europe is that higher credit costs will eventually drag down growth.

``There are increasing risks that the ongoing stress in the interbank market will ultimately impact the real economy and thus force the ECB to reconsider the division of tasks that it currently defends,'' said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London.

The ECB said two six-month operations with a pre-set amount of 25 billion euros each will be allotted on April 2 and July 9. Two three-month offerings with volumes of 50 billion euros each will be allotted on May 21 and June 11 and replace existing 60- billion-euro operations.

`Alarming'

The Frankfurt-based central bank is refusing to cut rates as inflation pressures mount. Weber said in Luxembourg today growth is still ``robust'' and the ECB ``will act'' to contain ``alarming'' price pressures if needed. Stark said in Cape Town he ``cannot be sure'' that the ECB's benchmark rate, currently at a six-year high of 4 percent, is high enough to contain inflation, suggesting he may support further increases.

German inflation accelerated more than economists forecast in March, climbing to 3.2 percent from 2.9 percent in February, the country's statistics office said today.

At the same time, there are signs that the credit crisis will spill into an economy already trying to cope with the euro's surge to a record against the dollar. Deutsche Bank AG Chief Executive Josef Ackermann said March 26 that ``conditions remain difficult both in financial markets and the wider economy.''

European retail sales fell in March and French consumer confidence dropped to a record low, separate reports showed today.

Banks are hoarding cash after about $208 billion of losses from the U.S. subprime-mortgage slump prompted them to stop lending to all but the safest borrowers. The cost of borrowing in euros for three months rose to 4.73 percent today, the highest level since Dec. 27, according to the European Banking Federation.

To contact the reporter on this story: Gabi Thesing in Frankfurt gthesing@bloomberg.net.

Last Updated: March 28, 2008 12:30 EDT