The Organisation for Economic Co-Operation and Development yesterday encouraged the US Federal Reserve to continue raising interest rates but urged restraint from the Bank of Japan and the European Central Bank.

In its twice-yearly Economic Outlook, published yesterday, the Paris-based organisation, said robust US domestic demand and a pick-up in inflation next year meant the Fed needed to continue to raise rates by another 0.75 percentage point to 4.75 per cent. But the absence of an inflation threat in Japan and the need for a more sustained recovery in the euro area meant that interest rates should remain where they are in Japan until 2007 and in the eurozone until autumn 2006.