Rates may overshadow G7 talks

A MEETING of the Group of Seven called to discuss the deteriorating Russian economy threatens to be overshadowed by US Treasury irritation at the Bundesbank's recent refusal to cut interest rates again, writes Peter Torday.

The talks, to be held at Kronberg near Frankfurt on 26 February, are expected to highlight the recent disagreement between Hans Tietmeyer, Bundesbank President, and Larry Summers, Assistant US Treasury Secretary for International Affairs, over German rates.

Mr Summers called for a sharp cut in German rates during talks with Mr Tietmeyer at the World Economic Forum in Davos last month and was roundly rebuffed.

The Bundesbank last week left its key rates unchanged following an unexpectedly strong surge in German money supply growth. Broad money, M3, shot up by an annualised 8.1 per cent in December, mainly due to an influx of foreign funds but there was evidence of strong domestic loan demand.

Over the weekend Lloyd Bentsen, US Treasury chief secretary, said the US wanted the G7 group of countries to take a greater role in promoting economic reform in Russia by working more closely with the IMF and World Bank.

It is thought the IMF would welcome greater involvement by G7 nations provided this did not mean any softening of loan conditions.