A SENIOR Bundesbank official has said the German mark is overvalued given the current state of the economy, the second central bank official in as many days to talk down the currency.
Mr Edgar Meister, a member of the central bank's governing council, said on German public television that the deutschmark's level was "incompatible" with the state of the economy, adding that economic growth "is not as good as we would wish".
Similar comments by the Bundesbank's chief economist on Wednesday, which also pointed to a possible cut in German interest rates, continued to reverberate through the market yesterday.
In early afternoon trade on London foreign exchange markets, the German currency had dropped to 3.4174 French francs from 3.4190 on Wednesday, while the dollar gained to DMI.4876 from DMI.4871.
Mr Meister said growth in money supply was still the key barometer used by the Bundesbank to determine monetary policy. But he declined to give any indication of the deliberations of the Bundesbank's central policy making committee which is due to meet on August 22nd after its summer break.
Several economists believe the bank could lower its repurchase, or repo rate, which has been fixed at 3.3 per cent since the start of February.
In June, M3 money supply grew at an annual rate of 9.6 per cent. The Bundesbank said in a report Tuesday it expected growth to slow to its 1996 target range of four to 7 per cent.
"The Bundesbank is going to observe very carefully the evolution of money supply in the coming months to see if, in this context and taking into account the monetary environment, there remains room to manoeuvre on lower interest rates," the report said.
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