West Germany's Central Bank Cuts Key Rate --- Little Impact Is Expected On Currency Markets Or Nation's Economy
FRANKFURT, West Germany -- The West German central bank, as expected, cut the interest rate it charges on securities-repurchase agreements with banks, a move that appears likely to fall short of its goal of supporting the dollar by widening the gap between German and U.S. interest rates.</br></br>The Bundesbank yesterday called for interest-rate tenders on 28-day securities-repurchase agreements at a minimum rate of 3.5%, well below the 3.8% rate it had been asking since January. Market experts estimate that the actual rate to emerge from bidding today is likely to be closer to 3.6% or 3.65%. But they expect the Bundesbank to use later tenders to continue to push the rate lower, possibly to 3.3%.</br></br>The repurchase facility is the central bank's principal open-market means for refinancing the banking system with funds backed by securities. Yesterday's Bundesbank action signals broad declines in capital-market interest rates, and could lead to lower credit rates charged by commercial banks.</br></br>The West German move complements a recent lowering of short-term interest rates in Japan and a tightening of credit by the U.S. Federal Reserve Board. Those two steps were aimed at stabilizing exchange rates.</br></br>However, foreign-exchange traders said the Bundesbank's action didn't have any immediate effect on the currency market and that small interest-rate movements are unlikely to significantly outweigh other factors weakening the dollar, including the U.S. trade deficit.