Brady Cautions World Banks on Interest Hikes

Treasury Secretary Nicholas F. Brady issued a thinly veiled warning today to the world’s central banks against raising interest rates too high and sabotaging global economic growth.

“We need to maintain a balanced view of the inflation risk, and not allow excess concern to undermine the prospects for continued economic expansion,” he told the OECD, a group of the world’s richest nations.

The Bush Administration is worried that the independent central banks of the United States and West Germany will overestimate the dangers of inflation and raise interest rates, choking off the eight-year-old economic expansion.

“Inflation developments in some countries have been a matter of some concern, but with the passing of some transitory factors they should remain under control,” Brady told fellow ministers in the Organization for Economic Cooperation and Development.

Brady got support for his views from some of his fellow ministers and from the OECD itself, which forecast that inflation among its 24-member nations would remain little changed this year and next, at just under 4.5%.

West German Economics Minister Helmut Haussmann told the OECD that there is no reason to fear upward pressure on prices from the economic unification of his country with East Germany.

Global investors are worried that East German consumers will fan inflation with a spending spree after they swap their own country’s currency for West German marks on July 2.

“Price pressure from unification is not to be feared,” Haussmann said. “Even if East German savers, after monetary union, increase their demand for consumer goods this will be a (one-time) effect.”

He said that West Germany is determined to limit inflation to 3% after the treaty for German economic and monetary union takes effect next month.