SIGN OF SLOWING IN GERMAN MONEY GROWTH -BUNDESBANK
Central bank money stock was growing
at about seven pct in the first quarter of 1987, down from
9-1/2 pct in the second half of 1986, so there are signs that
the pace of growth is slowing even though it is still above
target, the Bundesbank said in its 1986 annual report.
    The Bundesbank set a target range of three to six pct
growth from fourth quarter 1986 to fourth quarter 1987 for
central bank money stock. In the previous year it grew 7.7 pct,
outside the 3-1/2 to 5-1/2 pct target range.
    The Bundesbank noted that monetary policy in 1986 was
limited by a series of external factors.
    These included the revaluation of the mark, growing foreign
payments surpluses of non-banks, and currency inflows.
    The Bundesbank therefore tolerated the monetary overshoot
in 1986, as an attempt to counter monetary expansion with
interest rate and liquidity moves would have increased upward
pressure on the mark, it said.
    The lower end of the 1987 target range would be realistic
if a large part of funds currently held in a liquid form were
invested in long-term bank accounts or bonds, public bonds or
foreign securities, the Bundesbank said.
    But if companies and private households continue to hold
their funds in liquid forms, or if there are further currency
inflows, growth will be closer to the upper end of the range.
    "The more the conflict between external constraints and
domestic objectives relaxes -- and many things point to this at
the time of writing this report -- the more possible it will be
to do justice again to the medium-term concept of money supply
control," the Bundesbank said.
    It noted that prices were beginning to tend upwards again
at the start of 1987.
    There would be virtually no easing of other production
costs in 1987 to compensate for the rise in unit-wage costs.
    "Nevertheless, no inflationary trends are likely to set in
this year," the Bundesbank said.
    A link between excessive monetary growth and intensifying
price rises can only be observed in the long term, it added.
    The continuing trend for non-banks to switch into long-term
borrowing to take advantage of low interest rates, while for
the same reason shunning long-term investments, increases the
risks in changing interest rates for banks refinancing
themselves with variable-interest deposits, it added.
 REUTER
