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German Central Bank Cuts Another Key Interest Rate

August 24, 1995|From Bloomberg Business News

FRANKFURT — The Bundesbank trimmed its chief money market rate to 4.39% from 4.45%, moving a step closer to more substantial cuts in German interest rates.

"This is a clear indication that the Bundesbank is willing to cut," said Ulrich Beckmann, an economist at DB Research, the research arm of Deutsche Bank. "It just depends whether they'll do it tomorrow or wait for two weeks."

The Bundesbank's policy-making panel meets today to debate cutting the 4% discount rate, which sets a floor under German rates and in effect dictates rate levels across Europe.

The cut in the securities repurchase rate, the Bundesbank's target for overnight lending, came as bank President Hans Tietmeyer dangled the prospect of more cuts if inflation and the money supply keep moving in the right direction.

"If all the information is going in the right direction, I am not excluding some room for maneuver in reducing interest rates," Tietmeyer told the Japanese financial daily newspaper Nihon Keizai Shimbun.

The latest figures show that the German money supply contracted at an annual rate of 0.4% in July, ending five months of growth and drawing further away from the Bundesbank's target of 4% to 6% growth for 1995.

The M3 money supply points to inflation two to three years down the road.

The Bundesbank has retained it as its key monetary policy guidepost, even as the link between the money supply and prices has weakened in other advanced economies.

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