Hints of rate rise to defend the mark
Saturday 02 August 1997
The markets are waiting for 12 August, when the German central bank will decide whether to roll-over the current 3 per cent "repo" rate, the rate at which it lends to the market, or raise it. Some are expecting a small increase of 0.2 per cent or less.
Coming as the first rise in money costs in Germany since 1992, that might be enough to give the foreign exchange markets a jolt, but Julian Jessop of Nikko Europe says the bank could jack up rates by 1 percentage point or more. That would test the weaker economies like Italy - and increasingly even France - which many in the Bundesbank would prefer not to be in the first wave of EMU.
But others are more sceptical. Robert Lind of ABN Amro suggests a rate rise would have little effect on the mark and would cause "near-hysteria" in France. Robert Prior of James Capel says such a move would not be justified by the still weak state of the domestic economy.
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