Reacting to the raising of interest rates from 3.50 per cent to 3.75 per cent earlier this month by the European Central Bank this month, the Organisation for Economic Cooperation and Development (OECD) says inflation in the eurozone, US and Japan does not justify further rate rises.

Though the OECD said no immediate increase was justified, it still predicted that the ECB's key rate would reach 4.0 per cent by early 2008.

It said a rate rise might be needed at some stage in Europe, but that at the moment inflation was "well under control". It has predicted that US growth would remain subdued in the near term making further rate rises unnecessary while Japan still had lingering deflation and it should not raise its rates.

On 21 February, Japan doubled its benchmark interest rate to 0.5 per cent in February, the highest in more than a decade, after the world's second- biggest economy expanded at the fastest pace in three years. (See: Bank of Japan doubles interest rate to 0.5 per cent)

Japan has perhaps the lowest interest rates among major economies. The central bank said while interest-rate policy delays could spur over-investment and asset bubbles, any further increases would only be gradual, adding that there was no specific time frame for increases.

The OECD said that the Bank of Japan should wait until inflation is "firmly positive" before it raises rates again.

It said Japan's main economic challenge was to boost household spending, because its growth is currently too dependent on exports.