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The chairman of eurozone finance ministers said on Wednesday the European Central Bank (ECB) was seeking to raise interest rates to neutral did not know where this level was.
"The bank is desperately looking to get out of the accommodative character of its monetary policy and it is therefore looking for what is called a neutral level," said Jean-Claude Juncker, who is Luxembourg's prime minister and finance minister.
"They, the governors of the central bank, do not know where this neutral level is," he told a conference held in Paris just two days after eurozone finance ministers met ECB President Jean-Claude Trichet in Brussels for a regular informal meeting.
The ECB chief has himself said monetary policy remains accommodative as recently as last week. The ECB last raised interest rates on October 5, when it lifted its key refinancing rate to 3.25 percent from 3.0 percent.
The German government's panel of economic advisers deemed that the ECB's monetary policy was still slightly expansive. "All indicators point to monetary policy having moved towards a neutral bias this year," the panel, known as the "wise men", said in a report on Wednesday.
"Additional interest rate rises could be needed if there should be second-round effects, of which there are no signs at the moment." Turning to the next interest rate move, Juncker said: "The central bank, which sets the level of interest rates in all independence, is getting ready to raise them ... by 25 basis points in December. The financial markets have anticipated this move."
Juncker declined to give his own view on past or future interest rate rises, saying it was up to the eurozone's independent central bank to take such decisions. However, looking further ahead, he said the ECB had to be aware of the possible growth impact of any further rate rises.
"The central bank, in fixing its interest rates, should be careful its monetary policy does not hamper growth." Juncker added the euro's current exchange rate was not making industrial exporters in the eurozone uncompetitive on the international stage. The single currency is currently trading around $1.2750.
Still, he urged the United States on Wednesday to stick to its strong dollar policy. "I can only re-encourage the US authorities to pursue a strong dollar policy and I don't want to think that the US authorities have the intention of wanting to allow the dollar to weaken against the euro," Juncker told a news conference.
He said Europeans thought US authorities sometimes adopted a "radical and noisy" manner of addressing Asian countries on foreign exchange issues which risked producing the opposite effect of what was desired.
But he added: "During G7 meetings and bilateral meetings with the Chinese, we have always drawn our Asian partners' ... attention to the fact that the US and Europe have exactly the same view."
G7 finance ministers issued a statement after their September meeting in Singapore which said greater exchange rate flexibility was desirable in emerging economies with large current account surpluses, especially China.
Juncker stressed the need for economic reform in European countries, particularly in their social security systems which would face growing strains due to ageing populations.

Copyright Reuters, 2006

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