IMF wants Germany to hold rates steady

Most directors of the International Monetary Fund (IMF) see no reason for higher German interest rates and some believe the inflation-conscious Bundesbank should actually nudge rates down.

A strongly-worded statement released yesterday, four days after the annual IMF review of the German economy, said some of the directors saw risks that Germany - the world's third-biggest economy - would not meet budget targets laid down in the Maastricht treaty on European Monetary Union. But it said any overshooting would be small.

It described high unemployment as Germany's most pressing economic problem and said Germany's rigid economy needed large-scale structural change.

"Most directors believed that the current stance of monetary policy was appropriate and did not see a case for any tightening of monetary conditions until the economic expansion was well established," the IMF statement said.

"Indeed some directors argued that there would be grounds for a further easing if the recovery were to falter."

Financial markets have been speculating that a fall in the deutschmark and a rise in German inflation could encourage the Bundesbank to tighten policy.

Bundesbank president, Dr Hans Tietmeyer has said only that the question of a policy change remains open.