He said: 'I cannot imagine with money supply growth of nearly 10 per cent one could justify a move which would be seen as expansionary.'
Even though he expects Germany's inflation and money supply growth data to improve, Mr Gaddum said the Bundesbank's task was complicated by extreme sensitivity in the markets about inflation, and a loss of control over long-term rates.
'I do not think any short-term rate easing in the coming months will help the long end. On the contrary, there is a bigger risk it will have a negative impact on capital market rates unless we are very careful.'
Unlike in Britain, long-term rates are the most important for the real economy in Germany, affecting four-fifths of bank lending. While this nervousness in the capital markets continues - Mr Gaddum spoke of persistent inflationary worries - then short-term easing is likely to stay on hold.
The vice-president gave a strongly upbeat view of the German recovery, saying the 'optimistic predictions for the year appear realistic'.
He said unemployment had peaked, and this meant private consumption would not be as weak as forecasters suggested. He also said public finances were over the worst of the unification burden, and the consolidation would continue in 1995.
Unstated, but present in all Bundesbank thinking, is the general election on 16 October. If the Chancellor, Helmut Kohl, wins again it may help to ease inflation worries at the long end of the market. Mr Gaddum believes these are overdone, given the positive trends in Germany, and a Kohl victory might allow the Bundesbank room for a small key rate cut.
However, that needs to be soon, before the central bank faces the next complicating factor, the 1995 wage round. That gets under way towards the end of this year, and the outcome will be decisive for inflation. If the Social Democrats win the election, most analysts say the already slender chance of a further rate cut will disappear amid rising inflation fears.Reuse content