POEHL SAYS RATE RISES ARE CAUSE FOR CONCERN
  Rises in West German and international
  interest rates are a cause for concern and the Bundesbank has
  no interest in higher capital market rates, Bundesbank
  President Karl Otto Poehl said.
      "We consider the interest rate increase that has occurred
  here and internationally to be a problem and cause for concern,"
  Poehl told an investment conference.
      "I would like to stress that the Bundesbank has no interest
  in higher capital market rates," he said.
      Shortly after Poehl spoke, the Bundesbank announced a
  tender for a securities repurchase pact at a fixed rate of 3.80
  pct.
      Previous tenders over the last month by interest rate have
  seen the allocation rate on these facilities rise to 3.85 pct
  at last week's pact from 3.60 on the last fixed-rate tender in
  late September.
      The Bundesbank's reduction of the key allocation rate to
  3.80 from 3.85 pct was heralded Monday by repeated injections
  of money market liquidity at between 3.70 and 3.80 pct.
      These moves to cap interest rates followed a meeting
  between Poehl, Finance Minister Gerhard Stoltenberg and U.S.
  Treasury Secretary James Baker Monday in Frankfurt.
      Officials said afterwards the three men had reaffirmed
  their commitment to the Louvre accord on currency stability.
      Over the weekend, criticism by Baker of the tightening in
  West German monetary policy had prompted a sharp fall of the
  dollar on speculation that Louvre cooperation had ended.
      But the dollar rallied on news of Monday's meeting in
  nervous trading to trade above 1.79 marks Tuesday.
      Poehl said that the recent rise in interest rates was not
  due to central bank policy, but to markets' expectations, and
  currency developments.
      Commenting on the inflationary expectations, Poehl said "You
  have to get to the root of the problem, you have to pursue a
  policy which reveals that there are no grounds for such fears."
   The inflationary fears were unjustified and exaggerated, he
  said.
      Poehl rebuffed recent U.S. Criticism of West Germany,
  saying the Bundesbank had made a substantial contribution to
  international cooperation in interest and monetary policy.
      The Bundesbank has tolerated an overshooting of its money
  supply target, arousing criticism from other quarters, he said.
      "Today we still have lower interest rates than at the end of
  1986... Quite the contrary of other countries, where interest
  rates have risen substantially more," Poehl said.
      This had to be taken into account when considering recent
  rises in repurchase pact allocation rates, which were due to
  rising international money market rates that had spilled over
  into the German market, he said.
      Poehl expressed surprise that financial markets had so far
  ignored improvements in the U.S. Deficits.
      "The adjustment process in the U.S. Trade balance is
  definitely underway," he said, noting that this was not so
  noticeable in absolute figures.
      The spectacular improvement in the budget deficit had also
  attracted little attention, he said.
  

