Trichet rules out cut in euro-zone interest rates

European Central Bank (ECB) president Jean-Claude Trichet has ruled out a cut in euro-zone interest rates but showed little inclination to raise borrowing costs either, saying inflation was under control.

"Our position is very, very clear... a decrease of rates is not an option," he told a press conference following a meeting of finance ministers and central bankers from the Group of Seven (G7) rich nations in Washington at the weekend.

"We consider the present rates are appropriate and in line with our analysis, according to which there is no growing pressure... not permitting us to deliver the price stability which is our goal."

The March flash estimate of euro-zone consumer inflation was 2.1 per cent. The ECB defines price stability as keeping the euro-zone consumer price index below but close to a 2 per cent increase over the medium term and Mr Trichet said it was doing its duty.

"Because we were able to maintain these inflationary expectations... we could deliver to the full body of the European economy a financial environment that was exceptionally favourable for growth and job creation," he said.

The ECB has held rates at 2 per cent for almost two years but sluggish growth has encouraged calls for a cut, including from the International Monetary Fund, which said last week the bank should keep the rate-cut option open.

Mr Trichet acknowledged the growth outlook was "mixed" and that higher oil prices could trigger higher inflation and lower growth.

"Any increase in the price of oil has an immediate inflationary impact on headline inflation and a depressed impact on growth."

But he also said euro-zone growth could be stronger than expected - although he pointedly declined an invitation to say the risks to the outlook were balanced. "The signs we have are mixed. I was neither optimistic or pessimistic [ in the G7 meeting]."

The G7 include the US, France, Britain, Germany, Italy, Canada and Japan, and the ECB is invited to attend some of its sessions as an observer.

The group of industrialised nations this weekend put China on notice that it must shift to a more flexible currency regime, with finance ministers demanding that it take action immediately.

The G7's communique repeated its call for "more flexibility in exchange rates" where it was lacking, to help promote more balanced global growth, and added a demand that "vigorous action is needed to address global imbalances".

Officials said there was no discussion of singling out China because the language in the statement was already clearly aimed at Beijing and because of the difficulty of getting Japan to agree a formal declaration.