Heat turns on francs

THE BELGIAN and French currencies yesterday came under renewed pressure in the exchange rate mechanism, reflecting market frustration with the absence of interest rate cuts to dig the two economies out of recession, writes Peter Torday.

Otmar Issing, a Bundesbank director, meanwhile hinted that significant German rate cuts may lie a long way off, by stressing the difficulties for German monetary policy posed by the huge build-up of public debt.

The decision of the French and Belgian central banks to leave their key rates unchanged yesterday contrasted with a half-point cut in Spain's key rate, to 9.5 per cent, reflecting a change in monetary policy aimed at restoring growth.

The Belgian franc sank to a record low of Bfr22.06 to the mark before it edged back to a closing Bfr21.97 after repeated intervention by the Belgian National Bank.

The French franc fell at one point to Fr3.5425 to the mark, approaching its record trough of Fr3.5490, after Edmond Alphandery, the Economy Minister, said the franc's decline since September 1992 had rendered industry more competitive. It recovered later to end little changed at Fr3.5313. Mr Alphandery's statement nevertheless implied the French authorities were content to see the franc weaken.