GERMAN MONEY MARKET SPLIT ON LOWER RATE PROSPECTS
Remarks by central bankers raised some
hopes the Bundesbank will cut rates on securities repurchase
pacts, but operators remained divided on the likelihood of a
move in the near term, money market dealers said.
    Comments by Bundesbank board member Claus Koehler yesterday
that rate cuts were needed to curb money supply growth from
speculative capital inflows, and by West Berlin state central
bank president Dieter Hiss that there was no natural lower
limit to the discount rate had, however, no immediate impact.
    Call money declined to 3.65/75 pct from 3.75/85 pct but the
drop was tied to extra liquidity in the market, dealers said.
    Dealers said the Bundesbank's latest liquidity allotment
this week dashed some hopes of lower rates.
    The Bundesbank allotted only 6.1 billion marks yesterday in
new liquidity in a repurchase pact at an unchanged rate of 3.80
pct, thus subtracting some 8.8 billion marks from the market,
as an outgoing 14.9 billion pact expired.
    But some dealers said the smaller volume awarded by the
pact was in line with present liquid money market conditions,
and did not exlude a cut in the repurchase pact rate soon to
3.70 pct if money market rates continue at present levels.
    The next opportunity for the Bundesbank to lower rates on
repurchase pacts will be in a tender expected next Tuesday.
    Bundesbank officials have already said they favour more
discreet rate adjustments through repurchase pacts, rather than
the more public adjustment of leading rates.
    The Bundesbank may either set a fixed allocation rate and
allow banks to tender for the volume, as has been the case
since it lowered its discount rate January 22, or else it may
allow banks to tender for the rate and set the volume itself.
    Dealers expect volume of the tender to be lower than the
15.2 billion marks flowing out, to offset other incoming funds.
    Some seven billion marks is expected to flow in next week.
This should then flow back into the market as it is deposited
with banks.
    Banks were well supplied with liquidity, holding 61.5
billion marks in reserves at the Bundesbank on Tuesday.
    Holdings of average daily reserves over the first seven
days of April stood at 59.6 billion marks, still above the
estimated 51 billion required for all of April.
 REUTER
