Bundesbank Cuts Another Key Rate; Dollar Rises Against Mark

Germany’s central bank followed last week’s reduction in two key interest rates Wednesday by cutting its repo rate, the Bundesbank’s main lever on money market interest rates.

The central bank lowered the floor on the repo rate, which represents agreements covering short-term securities transactions, to 4.30% from 4.39%.

Belgium’s central bank, which generally keeps in step with German rates, cut its key lending rate 0.1 percentage point to 4.3%.

Following the German cut, the U.S. dollar rose against the German mark. In European trading, it closed at 1.4744 marks, up from 1.4714 late Tuesday.

Lower interest rates tend to make a currency less attractive as investors switch to securities denominated in currencies in countries where returns are higher.

But lower rates also tend to encourage borrowing by businesses and individuals and are used to boost economic activity.

Last week, the Bundesbank sliced half a percentage point off its two main official rates, putting the discount rate, the cheapest form of bank refinancing, at 3.5%.

German interest rates have been falling gradually for three years.