Tietmeyer dampens hopes for rate cut

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The Independent Online
FRANKFURT - Hans Tietmeyer, president of the Bundesbank, damped down hopes of an early cut in German interest rates with a warning yesterday that German interest rate policy must not damage confidence in the mark.

In a New Year message in the Handelsblatt newspaper, he said: 'We should be aware of the fact that the long-term relative stability of the mark is one of our most valuable assets. This valuable (asset) could be quickly gambled away if the Bundesbank gave more room for monetary expansion through generous rate cuts, as it is often urged to do.'

He said that decisive action to correct past mistakes in areas such as wages and finance could increase the room for manoeuvre on rate cuts. There was a need to reduce labour costs, increase productivity and lower public sector deficits.

On a more cheerful note, he said that money supply growth had fallen back recently after the considerable overshoot last year and he felt that there was every chance of meeting Bundesbank targets of growth between 4 and 6 per cent for 1994.

In a separate article in the German press, he said it was unlikely that the third stage of European monetary union, and a single European currency, would be reached at the end of 1996, the first possible date for the change.

Writing in the financial daily Boersen-Zeitung, he said it was not yet possible to say how long the second stage of monetary union, beginning today, would last. Only European Union members that meet the convergence criteria outlined in the Maastricht treaty can join an EU monetary union. 'The (German federal constitutional) court made clear that adhering to the criteria was more important than adhering to the timetable,' Mr Tietmeyer said.

He said the European Monetary Institute should primarily ensure the groundwork was laid for a 'fully-functioning central banking system'.

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