Germany Hikes Key Rate Over Inflation Fears

West Germany reported another strong monthly trade surplus Thursday and a small decline in inflation in its economy, Western Europe’s biggest.

But a cautious central bank, worried about a weak West German mark and risks of inflation, raised one of its key interest rates--the Lombard, at which it lends emergency funds to banks.

The Lombard rate rose to 5% from 4.5%, following rises in other West German interest rates this summer.

The Federal Statistics Office said the trade surplus was 10.3 billion marks ($5.6 billion) in May, compared to 9.5 billion marks ($5.1 billion) in April.

It said the annual rate of inflation fell to 1% in July, from 1.1% in June. But the Bundesbank is worried that a weak mark will lead to higher import prices.

The dollar was stronger against the mark Thursday, rising to 1.8645 marks from 1.8480 at Wednesday’s close in New York.

Exports Strong

One tell-tale sign of future inflation came just three days ago when the statistics office reported that import prices had risen by 1% in June from May levels.

Monetary analysts said that by raising the Lombard rate, the Bundesbank aimed to reassert control over the short-term money markets and rein in growth in the money supply.

Economists noted that exports remained strong.