Bundesbank chief economist Mr Otmar Issing yesterday stressed the central bank was worried by the deutschmark's rapid slide and dismissed the idea Germany's economy was too weak to bear an interest rate rise.

In an interview with the magazine Boerse Online, Mr Issing said exchange rates were one of the most important policy guidelines for the Bundesbank after its main indicator, M3 money supply, spelling this out more clearly than in the past.

"The fact that the deutschmark has weakened so fast and so significantly certainly gives us something to think about," he told the magazine in an interview conducted on July 29th.

The dollar, which was trading at around 1.8350 deutschmarks on July 29th, yesterday surged to an eight-year high above 1.88 deutschmarks, a jump of 22 per cent since the start of the year.

But Mr Issing made clear that the dollar's surge would not automatically have immediate policy consequences. "There is no automatic link between the dollar rate and monetary policy decisions," Mr Issing said.

Asked whether the economy could bear an interest rate rise given high unemployment and a stumbling economy, Mr Issing said: "I would disagree with that assessment. We have a clear rise in capacity utilisation and exports are really booming in some areas.

"There are good chances that the government's expected growth rate...of at least 2.5 per cent for 1997 will be achieved. The economy is not exactly overheating but it should not be labelled worse than it is," he said.

Mr Issing's comments opened a fresh debate in financial markets already swirling with speculation over whether the Bundesbank could be about to tighten policy, a move which would mark the end of five years of falling German interest rates.