Bundesbank issues policy warning

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THE TUG-OF-WAR over German interest rate policy between the new government and the Bundesbank escalated at the weekend, as three central bank officials warned political pressure to lower borrowing costs could have the opposite effect.

Attempts by governments to interfere with the policy of the German central bank or its Europe-wide successor, the European Central Bank, will prove "counterproductive", Bundesbank council member Edgar Meister said, adding that a rate reduction is not needed while the economy continues to expand. His comments, supported by Bundesbank Vice President Juergen Stark and fellow council member, Franz-Christoph Zeitler, came as Chancellor Gerhard Schroder and Finance Minister Oskar Lafontaine urged the bank to rethink its rate policy with a view to stimulating economic growth.