THE Bank of France trimmed a key interest rate yesterday in an apparent sign of approval for the conservative government's 1997 budget.
The bank said it was lowering its intervention rate to 3.25 per cent from 3.35 per cent at a money market tender.
The bank left the five-to-10-day rate, which is considered less important at the moment, unchanged at 4.75 per cent.
"It is a validation of the budget," Credit Lyonnais economist, Mr Valerie Asselot, said.
"It means the Bank of France did not see the budget as being a threat in terms of inflation or the franc," Societe Generale economist, Ms Michala Marcussen, said.
On Wednesday, the government unveiled a 1997 budget which lowered spending in real terms and would allow France to meet Maastricht treaty criteria on European monetary union.
But the government had to resort to exceptional revenues, such as a payment from France Telecom to cover pension liabilities in the years ahead.
Economists had been split on whether the bank would cut interest rates yesterday, with some saying they expected the Bank to wait for the dust to settle after the budget.
The franc was trading at 3.4063 to the mark shortly after the rate cut, lower than before the budget announcement but off the low of 3.4092 it reached on Wednesday.
In cutting the intervention rate, the Bank of France narrowed the premium of French rates over German rates which had widened after the Bundesbank cut its repo rate to 3 per cent from 3.30 per cent on August 22nd. At the time, the Bank of France cut only 20 basis points off the intervention rate.
