German rate cut hits the franc

THE FRENCH franc came under pressure in the European exchange rate mechanism yesterday after the Bundesbank disappointed the currency markets with only a small cut in one of its key interest rates.

The franc slid within 3 centimes of its floor, reflecting fears that an incoming right-wing government may be forced to devalue to boost the economy. That would allow French interest rates to be reduced from 11 per cent. National Assembly elections begin on Sunday.

The Bundesbank cut its discount rate by half a percentage point to 7.5 per cent, but left the Lombard rate, the ceiling for market rates, unchanged at 9 per cent. That suggested that further rate cuts in Germany may not be quick enough to save the ERM.

Bundesbank disappoints, page 25

French elections, page 12

Hamish McRae, page 27