A POSSIBLE cut in the Bundesbank's key repo-rate is not expected to have any impact on the market here with retail rates likely to rise by half a percentage point before the end of the week.
The Bundesbank yesterday held out the prospect of a cut in the repo, which is its main money market rate, saying it would continue to monitor the key monetary indicator, the M3 money supply figures, to assess scope for lower rates.
Several commentators have forecast the easing could come relatively soon after the German central bank returns from its tour week holiday on August 22nd.
But many Irish economists believe that even a cut in the Buba's repo rate, currently at 3.30 per cent, would not halt the impending rise in retail rates here.
"I don't think it will have any impact on the Irish market," said Mr Declan O'Neill, an economist with Ulster Bank group treasury.
A repo rate cut could take some pressure off wholesale rates, and help improve sentiment but it is likely to come too late to stop the rise in retail rates here, according to Mr Pat O'Sullivan, an economist with AIB's treasury division.
Banks and building societies yesterday continued what has become a slow bicycle race towards a mortgage rate increase, as no institution wants to be seen to be the first to increase its interest rates. Some special offer rates have indeed gone up since Friday last, but the main retail rate's remain steady.
Most economic commentators argued rates would go up by the close of business on Friday but one well placed financial source believes institutions will hold off as long as possible before increasing rates due to the highly competitive mortgage market.
"It wouldn't surprise me if they don't go up before the weekend there isn't a terribly strong desire to put them up," the source added.
In its August report, released yesterday the Bundesbank wrote that it "will carefully observe the developments of M3 in the next months to determine whether it and monetary policy conditions present room for lower money market rates".
Only two weeks ago the Bundesbank disappointed markets when it left the repo rate steady at 3.30 per cent even after it had issued a string of official comments that left many observers convinced a cut would be announced at the July 25th meeting.
Although growth in M3 which consists of cash in circulation and short term deposits, has been persistently strong and has out paced the Bundesbank's 4 to 7 per cent target corridor for months, the bank now expects a gradual, slowdown in M3 growth to continue.
"Money supply growth should continue to approach the growth corridor in the coming months," the Bindesbank said.
Meanwhile the IFA has warned that any increase in interest rates would deal a "triple blow" to farm incomes.
The chairman of the IFA's national farm business committee, Mr John Fitzsimons, said a rise in interest rates would reduce the competitiveness of the Irish food exports, trigger a probable revaluation of the Irish green pound and increase the loan repayments of thousands of Irish farmers.
Mr Fitzsimons said farmers had borrowings of £1.4 billion, and claimed a rate increase of half a percentage point would cost an extra £7 million in a full year.
According to the IFA, the Government and the Central Bank should recognise that a rate increase would further undermine farm incomes at a time when more than 100,000 livestock farmers are facing a disastrous financial situation as a result of the BSE crisis.
