Central Bank Hikes German Interest Rates
Germany’s central bank Thursday raised two key interest rates half a percentage point to head off inflationary pressures as the country borrows heavily to finance unification.
The move could strain economic policy in other nations. The United States favors lower interest rates to spur economic growth and has asked other nations to follow suit. Britain also needs lower rates to help recover from recession.
The higher rates in Germany will attract foreign money from investors seeking the best return, thus pushing down the exchange value of currencies of other countries. That could put upward pressure on interest rates in those countries.
The staunchly independent Bundesbank is supposed to be the model for a future European central bank that will manage monetary policy free of political winds and that will support a stable Euro-currency that may be introduced by 1999.
In Friday’s move, the Bundesbank boosted the discount rate, the interest rate on its loans to banks, from 7.5% to 8%.
The Lombard rate, a ceiling on overnight loans, rose to 9.75% from 9.25%.
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