West German Cut In Discount Rate Seen as Unlikely
FRANKFURT, West Germany -- West Germany's central bank isn't expected to reduce its discount rate when its policy-setting panel meets tomorrow, despite pressure to follow recent cuts by the U.S. and Japan.</br></br>West German banking analysts said they expect the Bundesbank to leave the discount rate unchanged at 3.5% because of concern over money-supply growth and the German mark's weakness in the European Monetary System, a joint float of eight continental European currencies. The analysts said that if the central bank takes any action, it is likely to lower the Lombard rate, which currently is 5.5%.</br></br>The Lombard rate, a short-term fee under which banks borrow funds from the central bank using securities as collateral, has served as an upper marker for West German money-market rates. The discount rate, a longer-term rate under which banks can borrow using bills -- primarily government and commercial paper -- as collateral, serves as the central bank's key tool for steering market interest rates.</br></br>In Washington, the Treasury declined to comment on the possibility that the West German central bank might reduce its Lombard rate. But in general, U.S. reaction was muted.</br></br>The Reagan administration would prefer to see the Bundesbank cut its discount rate rather than the Lombard rate, which is narrower in scope. However, any cut in the Lombard rate still would be seen as a welcome gesture of West German support for the latest round of interest rate cuts and would be within the range the U.S. wants.