W. Germany Expected to Raise Key Discount Rate

Bankers say they expect West Germany to raise its key discount rate today in efforts to staunch an outflow of capital, prop up the deutsche mark and ease inflationary pressure.

The central bank, the Bundesbank, holds a regular council session on Thursday and is likely to act then, raising the important interest rate by at least half a percentage point from the record low of 2.5% in force since last autumn.

A Bundesbank board member, Claud Koehler, said on radio that such a move was not a foregone conclusion, but economists say various factors call for a rise in leading interest rates.

“Most important is the fall in the external value of the mark and the extremely high outflow of capital in the first months of the year,” said Hermann Remsperger, chief economist of Berliner Handels-und Frankfurter Bank.

The mark has fallen sharply against the recently robust dollar, which has risen to 1.83 marks from 1.56 marks in January.

As a first step, the Bundesbank last week raised its securities repurchase allocation rate, at which it lends short term to the banks, to 3.5% from 3.25%.