West Germany Joins Rate Hike Derby; Fed Watched

West Germany announced a hike in a key interest rate today as part of a round of increases in European nations that sparked speculation that the U.S. Federal Reserve will soon join in.

The Bundesbank, West Germany’s central bank, said that effective Friday, its Lombard rate will be raised by half a percentage point to 5.5%.

The Netherlands and Austria announced higher rates soon after the West German move. France had announced its hike late Wednesday, apparently in anticipation of the German move.

The increases immediately sparked speculation in world markets that the Federal Reserve would be impelled to take a similar action and raise its discount rate from 6.5%.

The Lombard rate is the interest rate charged to banks for emergency borrowing from the Bundesbank in exchange for pledges of securities as collateral. The central bank said its discount rate would be left at 3.5%.

The Lombard rate increase was expected after the Bundesbank had steered money market rates higher in recent days.