Germany's central bank cuts key rate half a point

March 19, 1993|By Carl Schoettler | Carl Schoettler,Berlin Bureau

BERLIN -- Germany's central bank cut its discount rate half a point yesterday, to 7.5 percent, responding to European complaints that the bank has inhibited economic growth at a time when stimulation is needed.

In a terse statement after its morning meeting yesterday, the Bundesbank said the move "continued its policy of step-by-step lowering of the interest rates."

In November and February, the bank eased its discount and Lombard rates, the rates banks pay in borrowing money from the central bank. Earlier this month, the Bundesbank lowered its rates for business loans. The Lombard rate, which was not cut yesterday, remains at 9 percent.

Money markets responded immediately to the Bundesbank announcement by pushing the dollar higher against the mark in London and New York. Central banks in the Netherlands, Denmark and Switzerland responded by cutting rates.

German commentators suggested that the Bundesbank had heeded European pressure and the needs of the German economy, which is mired in recession.

By attracting capital of investors seeking higher yields, the high German interest rates have forced other European Community countries to keep their own rates higher than they felt economically desirable.

TTC The Bundesbank's tenacious hold on interest rates has been blamed for last fall's currency fluctuations that drove Britain and Italy from the European monetary system.

The Bundesbank is considered the most powerful central bank in Europe and probably the second-most-powerful in the world, after the U.S. Federal Reserve. But it is also probably the most cautious; controlling inflation is a virtual obsession.

Figures have shown that inflation in Germany is in check and might even be falling. Meanwhile, unemployment is nearly 7 percent and rising, and other unpleasant financial news flows from almost all directions.

The Bundesbank's tight-money policy has kept the mark high, thus hurting German exports.

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