Bundesbank cuts money market rate, but pace slows
FRANKFURT (Reuter): The Bundesbank gingerly nudged German money market rates lower yesterday but the tiny cut reflected a slowing in the pace of recent declines.
The Bundesbank allowed the securities repurchase rate or "repo", its leading money market rate, to drop three basis points to 5.73 percent from 5.76 percent the prior week.
Although in line with market expectations, the cut still reinforced the German central bank's commitment to lower rates and German financial markets gained on the news. The DAX index of 30 leading shares ended bourse trade nearly 33 points higher at 2,191, and bond prices also rose.
By allowing a decline, the Bundesbank has continued a trend of gradually pushing the important interest rate lower. The "repo" -- which sets the tone for other money market interest rates -- is the rate banks pay for funds offered to banks by the central bank in return for a deposit of securities, which the banks agree to buy back at later date.
The Bundesbank had held the repo rate steady at six percent from December but last month started to let it ease. The pace of the cuts has slowed in the past two weeks and analysts say this could be an effort to nip in the bud any market speculation of a discount rate cut at the Bundesbank's next council meeting on April 14, its first in a month.
The discount rate, the floor to German interest rates, stands at 5.25 percent.
This week the Bundesbank whittled three basis points off the repo rate after last week's four-basis-point decline. These falls are considerably smaller than the two that preceded them of eight and six basis points.