The growth in money supply, M3, accelerated to 5.3 per cent in the six months to March, but this was largely because of a slowdown last September dropping out of the six-month comparison. The expansion in the year to March compares with a contraction of 0.3 per cent in the year to February, but the latest figure remains well below the Bundesbank's annual target range of 4.5 to 6.5 per cent.
Adding to optimism that the German central bank may stick with its policy of gradually easing interest rates, the Bundesbank yesterday pushed the German call rate down to 8.07 per cent from a starting rate of 8.2 per cent. It also slightly lowered the securities repurchase rate - the rate at which the central bank lends to the commercial banking system - to 8.09 from 8.11 per cent. Analysts said the move suggested that the repo rate could be driven below 8 per cent as early as next week.
But hopes of a cut in key rates at today's Bundesbank central council meeting remain muted. A cut in the discount rate, now 7.5 per cent, is thought less likely than a modest fall in the lombard rate, currently 9 per cent. This forms the ceiling to the German interest rate corridor and is less significant than the discount rate when the trend is downwards.
Even if the Bundesbank limits itself to cutting the repo rate next week it will ensure a welcome reception at next Thursday's meeting in Washington of finance ministers and central bankers of the Group of Seven leading industrial countries.
Pressure for lower German rates is mounting as evidence of the recession grows. Theo Waigel, the Finance Minister, disclosed yesterday that the budget deficit this year is expected to exceed forecasts by 20 per cent and may reach DM70bn (pounds 28.4bn).
Despite mixed signals on the interest rate front, the dollar gained slightly against the mark, adding 0.35 pfennigs to close at DM1.6030. Against the pound the mark was little changed at DM2.4658. The yen ended slightly lower at Y110.92 to the dollar following suspected intervention by the Bank of Japan and the Bundesbank, apparently aimed at capping the yen's recent sharp rise.
Britain is likely to come under increasing EC pressure to rejoin the exchange rate mechanism, the Commons Treasury and Civil Service Select Committee warned yesterday.
The all-party committee said that, following a fact-finding tour of several European capitals, it believed that political pressure from some community partners would grow.Reuse content