POEHL WARNS AGAINST FURTHER DOLLAR FALL Bundesbank President Karl Otto Poehl said a weaker dollar would be risky and a further appreciation of the mark would damage prospects for sustained West German economic growth. In a speech to the Institute of Contempory German Affairs here, Poehl said "It would be an extremely risky policy to aim for a further substantial decline in the value of the dollar to correct the trade deficit." He said the United States could face a vicious circle of depreciation, inflation and more depreciation if it took that route. Poehl noted West Germany had already taken steps to meet U.S. Demands for greater stimulation of its domestic economy, accelerating tax cuts, cutting interest rates and tolerating above-target money supply growth. He said he would have been happy to have brought forward five billion marks of tax cuts now planned for January 1988 to the beginning of this year, but he said the government faced political constraints getting such measures through the upper house of the West German parliament. But there were also limits to the impact West Germany could accept on exports from a rising mark, he said. Poehl said West Germany relied on exports for about one-third of its gross national product, so a substantial erosion of export markets could not be offset by increasing demand at home. "A further appreciation of the mark could even be an obstacle to further growth," he said. Poehl said the Bundesbank had tolerated rapid money supply growth last year because the country enjoyed low inflation and because external factors, including low oil prices and favourable terms of trade, had given some extra leeway. But Poehl said West Germany now faced a difficult dilemma over monetary policy. The underlying rate of inflation was now two pct, not the reported negative inflation rates last year, and West Germany was affected more than before by exchange rate developments. "For the time being, we will have to focus our policy more on the external side, and we can live with a more expansionary money supply. But we must be very careful," he said. He said he shared some of the U.S. Concern about Japan's trade surpluses, which affected European countries as well as the United States. Poehl welcomed the so-called Louvre accord of monetary officials of major industrialized countries, saying the importance of the February 22 agreement to stabilize exchange rates had been underestimated. All partners had agreed that the dollar was at about the right level, and that further changes would damage growth, he said. "This was a remarkable change in attitude, especially on the part of our American colleagues," he said. But he said there was still a danger that the correction of the dollar's value could overshoot.