Germany: rate dilmemma
Article Abstract:
The German Bundesbank is faced with contradictory pressures with regard to interest rates. The German money supply is showing rising growth, on the one hand, but on the other, unemployment is increasing and the German mark is overvalued. A solution may be to do nothing, but markets could infer that rates will be raised, when changes are finally made, which would push up the value of the German mark. A drop in rates could lead to higher bond yields which would also affect economic growth. A cut appears likely since a rise in the value of the mark is seen as more of a problem than higher bond yields, argues Lehman Brothers' Klaus Baader.
Publication Name: Investors Chronicle
Subject: Business
ISSN: 0261-3115
Year: 1996
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Germany confronts an interest rate dilemma
Article Abstract:
German interest rates may be reduced following a drop in national income of 0.4% in 4th qtr 1995, and a rise in unemployment which could reach over 4 million in April 1996. A cut in rates to 2.5% from 3% could, however, lead to a rise in the value of the German mark, since markets would assume that rates would rise thereafter. The German economy looks set to recover in 1996, and the money supply measured as M3 is seeing faster growth, which could mean that inflation will rise.
Publication Name: Investors Chronicle
Subject: Business
ISSN: 0261-3115
Year: 1996
User Contributions:
Comment about this article or add new information about this topic: