Irish rates await German move

CUTS in British and French interest rates announced yesterday are not expected to have any immediate impact on rates here, according to Irish economists. The news of falling interest rates helped push the British and Irish, stock markets to new closing highs and last night the Dow Jones index also rose sharply to close at 5124.35, up 57.45.

The timing of the next move in Irish rates is still expected, to depend on movements in German rates - the Bundesbank announced no changes after its meeting yesterday.

Yesterday's cuts were part of an "overall very positive interest rate story" in Europe, according to Mr Jim Power, economist with Bank of Ireland Group Treasury.

However, the Irish authorities are expected to wait and see if the Germans cut rates before moving Irish rates lower. Irish money market rates eased slightly yesterday to around 5.4 per cent, in line with European rates. The pound was unchanged at just over 103.5p sterling.

The Bundesbank is expected to drag out the process of easing German rates in order to have the maximum impact on the deutschmark, which is seen as uncompetitively strong. A German rate cut is unlikely to happen before March, believes Mr Power.

The German authorities may also be waiting to see if another rate cut is really necessary, believes Mr Beggs. Although the president of the Bundesbank, Mr Hans Tietmeyer, has said that German rates could be cut if money supply growth remains low, there is some evidence that money supply growth is recovering, he points out.

If the Germans do opt for a rate cut later this year, the Central Bank will pay heed to, the latest information on Irish inflation before deciding whether to follow suit, he said.

British shares soared to a record close after the Bank of England cut British rates by slicing a surprise 0.25 percentage points off its key lending rate.

The Bank of France followed suit with a 0.25 per cent cut in its important intervention rate and the Dutch shaved their money market rate.

The French rate cut had been widely anticipated and the German decision to leave its main rates unchanged was expected but Britain surprised the markets by moving so quickly. However, a further British rate cut in the early part of the year had been anticipated.

The cut, barely five weeks after the last reduction, prompted speculation that the Chancellor of the Exchequer, Mr Kenneth Clarke, had acted for political reasons.

Mr Clarke justified his decision by saying inflation pressures were clearly under control, while the British economy and those of its trading partners were slowing.

London share prices leapt on the news, while government bonds firmed and sterling edged higher against the D mark.