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IMF Official Warns Against Europe Raising Rates Too Much
Date 04/03/2011 13:09  Author webmaster  Hits 1032  Language Global

04 MAR 2011

By Steve Goldstein (IMF Official Warns Against Europe Raising Rates Too Much)

WASHINGTON (Dow Jones) -- On the same day the head of the European Central Bank signaled a rate increase could come as early as next month, a senior International Monetary Fund official on Thursday warned the ECB against aggressive tightening.

"Monetary policy can afford to remain accommodative," said Ajay Chopra, deputy director of the IMF's European department, at a meeting in Washington DC to discuss European turmoil.

Chopra specifically said he had not had a chance to study the comments made by ECB President Jean-Claude Trichet at a press conference which took place during the Washington event. Trichet said a rate increase in April was "possible" and that the central bank was maintaining "strong vigilance" against inflation, an indication that the central bank was likely to raise rates next month to 1.25% from 1%.

Chopra also didn't say at what point rates would not be "accommodative."

Simon Johnson, a professor at the MIT Sloan School of Management, added that rate increases could represent a "new source of tension."

The discussion, sponsored by the Bretton Woods Committee, encouraged regulators to pressure European banks to increase capital. Only one institution, Deutsche Bank (DB) , increased capital following a first round of stress tests. The new European Banking Authority on Wednesday announced another round of stress tests, with results due in June.

European banks, including Barclays (BCS) and HSBC Holdings (HBC), have already warned investors that greater capital will hit their return on profitability.

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