International Business : Germany Cuts Money Market Rate, Belgium Follows

The Bundesbank stepped up the pace of cuts in its main money market interest rate Wednesday, triggering a parallel easing in Belgium and increasing the chances of a further interest rate cut by France.

The German central bank’s rate dropped to 3.40%, down from 3.55% last week. The fresh slide means the rate has now dropped by almost a third of a percentage point in the last four weeks, an unusually sharp fall.

Belgium, which ties its rates closely to Germany’s, responded immediately by cutting its central rate to 3.40% from 3.55% and its end-of-day rate to 4.65% from 4.80%.

Analysts said the Bundesbank move also made it more likely that the Bank of France will cut its intervention rate to 4% from 4.20% today.

Clear signs that the German economy is slowing--although government officials hotly deny that the country is heading back into recession--prompted Bonn to roll out a package of measures this week to stimulate growth and create jobs.

Although the fiercely independent Bundesbank is not a party to this package, economists argue that the central bank could nonetheless be forced into rate cuts if the economy slows too sharply.

The central bank last cut its discount rate--the floor for German short-term rates--and Lombard emergency funding rate in mid-December, by half a point each to 3% and 5%, respectively.