INTEREST rates on the Dublin wholesale money market continue to indicate that bank and building society rates should increase. However, the financial institutions are now waiting to see whether an expected reduction in German money market rates later this week will affect the Dublin market.
Meanwhile, the US Federal Reserve Board opted to hold interest rates steady yesterday, amid signs that the economy is cooling off and inflation remains subdued. The Bundesbank is highly likely to lower its main money market interest rate this week, finally following through on a promise made in April to cut the rate when conditions allowed, according to economists.
They said a marked slowdown in the headline growth rate for M3 money supply in July - from 9.6 per cent to 8.6 per cent - combined with low inflation and an uneasy economic upturn, meant that the climate was now right for a cut of up to 10-20 basis points in the repo rate.
The Bundesbank said yesterday annualised M3 money supply growth dropped to 8.6 per cent in July from 9.6 per cent in June.
Signs of a slowdown in M3 were a stated condition for the Bundesbank to lower the repo rate, the rate at which central bank funds are made available to German banks.
The rate has been held at 3.3 per cent since February, even though the central bank lowered official discount and Lombard rates - the floor and ceiling for money market rates - to 2.50 and 4.50 per cent respectively in April.
However, the reduction in the repo rates is likely to be small - between 0.1 and 0.2 of a percentage point.
