EU's Beres Says ECB Rate Policy Wrong as Euro Rises (Update1)

EU's Beres Says ECB Rate Policy Wrong as Euro Rises (Update1)
By John Fraher
Nov. 24 (Bloomberg) -- The European Central Bank is wrong to raise interest rates as the euro's climb above $1.30 threatens to hurt export growth, said Pervenche Beres, head of the European Parliament's economic and monetary committee.
``It's not good news for the European economy,'' said Beres, whose committee oversees the ECB's activities, in an interview in Berlin today. ``It's not the right time to raise interest rates.''
Europe's single currency rose above $1.30 for the first time since April 2005 today on speculation ECB President Jean-Claude Trichet will keep raising borrowing costs next year to prevent faster economic growth fueling inflation. The rally puts an additional burden on the region's exporters, who are already coping with the currency's climb against the yen.
The euro is strengthening as the interest-rate gap between Europe and the U.S. narrows. The Federal Reserve has left its key rate at 5.25 percent since June 29, a period in which the ECB has lifted its benchmark 50 basis points to 3.25 percent.
With economists at Goldman Sachs Group Inc. and Merrill Lynch & Co. forecasting that the Fed will ease policy next year and European policy makers including Bundesbank President Axel Weber suggesting ECB rates will have increase rates further next year, the euro may come under even more pressure.
Morgan Stanley on Nov. 21 said the ECB will take its key rate to 4 percent in 2007.
Stronger Euro
Europe's single currency was worth $1.3089 at 12:25 p.m. in London, taking its gain in the past month to 4 percent. It traded at 151.43 yen, after reaching a record of 151.67 on Nov. 20.
The euro is gaining just as a U.S. slowdown threatens to damp export growth. DaimlerChrysler AG, the world's largest truckmaker, said Nov. 17 it expects a ``profound downturn'' in U.S. demand.
German lawmaker Joachim Poss, who sits on the country's budget committee, also said the ECB should be concerned by the currency's appreciation.
``I hope that the ECB will consider it carefully in its assessment'' of the interest rate outlook, Poss told reporters in Berlin.
Peres said the euro's rally also shows the need for ``coordination'' of foreign exchange policy between the ECB and the euro-region's finance ministers.