ECB's Bini Smaghi says 4 pct inflation too high

CORTINA, Italy, Aug 28 (Reuters) - The European Central Bank is doing all it can to bring down inflation and interest rates wouldn't be particularly restrictive even if they rose to 4.5 percent, ECB executive board member Lorenzo Bini Smaghi said.

"Inflation of 4 percent is too high, it needs to come down and we are doing everything we can to reduce it," Bini Smaghi said on Thursday at a round table discussion in the northern Italian town of Cortina d'Ampezzo.

"Naturally, we have a very limited instrument, which is interest rates," Bini Smaghi added, calling on all other economic agents, such as price and wage setters, to work toward the same goal.

"If they did, we would be very happy to have lower rates, but it doesn't seem to me that interest rates of 4 and a half or 4.25 percent are particularly restrictive," he said.

Last month the ECB raised its key refinancing rate to 4.25 percent from 4.0 percent. Most analysts expect the bank to leave rates on hold for the rest of this year as it grapples with high inflation but weak economic growth in the 15-nation euro area.

Closer to home, Bini Smaghi offered a word of encouragment for the Italian government, which earlier this summer presented a budget plan outlining fiscal policy for the next few years.

"This should allow Italians to pass the next three autumns (when the budget is traditionally presented) without the anxiety of discovering whether their taxes will be raised or not. If it succeeds in that it will be very important," Bini Smaghi said. (Reporting by Carlo Saccon, writing by Gavin Jones; Editing by Leslie Adler)