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Bundesbank Trims a Key Interest Rate : Germany: Action could signal deeper cuts in other official rates.

August 10, 1995|From Bloomberg Business News

FRANKFURT, Germany — The Bundesbank kicked off a fresh round of cuts in German interest rates by engineering the biggest drop in money market rates in four months.

The cut in the securities repurchase rate to 4.45% from 4.50% was bigger than financial markets had expected and heralded deeper cuts in official rates, possibly today.

"Rule One of Bundesbank watching is expect the unexpected," said Julian Jessop, an economist at HSBC Markets in London. "I wouldn't rule out a move" today.

Bundesbank officials meet today to debate whether to lower the more important discount rate, which sets a floor under interest rates in Germany and across Europe. The rate was last cut by half a point, to a six-year low of 4%, on March 30.

The 17-member policy-making panel's first session after a four-week summer break comes amid mounting calls for lower interest rates by German trade unions, the political opposition, industry leaders and economic research institutes.

The German government, under pressure to revive a faltering economy and create jobs for the country's 3.5 million unemployed, said it is confident the Bundesbank will do the right thing.

"I assume the Bundesbank will do what's necessary," Economics Minister Guenter Rexrodt said.

Rexrodt stayed at arm's length from the independent central bank, lauding it for a clever monetary policy that has battled inflation and kept German interest rates low.

The western German inflation rate has dropped from a post-unification peak of 4.8% in March, 1992, to 2.3% now, close to the Bundesbank's target of 2%.

Rexrodt disputed warnings by economic think tanks that the appreciation of the mark and hefty pay awards will brake the economy in the latter half of 1995.

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