FRANKFURT (AFP) - European Central Bank President Jean-Claude Trichet warned that persistent high oil prices could dampen the strength of the economic recovery in the eurozone.
"If oil prices were to remain at current levels, or even increase further, they would dampen the strength of the recovery both inside and outside the euro area," he told reporters in Frankfurt
"This is a worrisome development," he said.
"Persistently high and rising oil prices have had a visible direct impact on consumer prices this year, and inflation is likely to remain significantly above two percent in the coming months," Trichet said.
Earlier, an ECB spokesman said that the bank had held the minimum bid rate for its regular refinancing operations steady at 2.00 percent; the same point it has sat on since June 2003.
The bank, the guardian of the euro single currency, also held its other two key rates -- the deposit rate and the marginal lending rate -- unchanged at 1.00 percent and 3.00 percent respectively.
Trichet also lamented the current exchange rate volatility, as the euro single currency climbed toward a record level against the US dollar.
"Excessive volatility and discordant movements on the exchange are undesirable, I have said that and I repeat it," he said."
Just after the rate announcement, the euro held steady at 1.2866 to the US dollar, close to the record level of 1.2929 that it reached on February 18.
He also warned that some eurozone countries were likely to breach EU rules on the single currency by letting their public deficits blow out beyond 3.0 percent of gross domestic product (GDP).
"It is therefore imperative that 2005 budgets prioritise consolidation where this is necessary. Moreover, it is of vital importance that the reliable compilation and timely reporting of government finance statistics are ensured. "Appropriate budgetary targets and compliance with fiscal commitments and reporting requirements will help to build confidence, support the economic upswing and prepare for the impact of population ageing," he said.
While Trichet welcomed planned improvements to the guidelines, the 1997 Stability and Growth Pact, he warned that certain parts, particularly the excessive deficit procedure, must not be changed.
11/04/2004 - 16:10 GMT - AFP