Bundesbank Leaves Rates Unchanged
The announcement came after news of a bigger-than-expected rise in German unemployment in October. But economists had argued that given recent evidence of a steady economic upturn, the central bank had no reason to provide additional stimulus.
The German discount rate remains at 2.50 percent and the Lombard emergency financing rate at 4.50 percent. The central banks main money market rate, the repo, was also held steady at three percent for the next two weeks. All 10 economists polled by Reuters this week said they expected the German central bank to keep rates on hold for the rest of the year.
The widespread consensus on rates comes at a time when Bundesbank council members at times sent mixed signals about the future of interest rates, some saying they would consider supporting a rate cut if the economy slowed.
While economists see little immediate threat of a slowdown in the economy, the Federal Labour Office warned that the upturn was not strong enough to curb joblessness significantly.
It said average unemployment would stay at just under four million this year and next.
In October, unemployment rose by 41,000 people to a seasonally adjusted 4.04 million. The unadjusted unemployment rate was steady at Septembers level of 10.1 percent.
But recent economic indicators have shown that German exports, helped by a weaker mark, are starting to pick up. Exports have historically been the first part of the German economy to recover from slower periods, followed by an increase in investment and after that by increases in spending.Germanys six leading economic research institutes have meanwhile added to the optimism, reporting last week that they see the economy growing 2.5 percent next year after 1.5 percent this year solid if unimpressive growth.
The Bundesbanks key policy indicator, M3 money supply, is also giving the central bank scant reason to cut rates as it remains stubbornly above the Bundesbanks target corridor of between four and seven percent growth.
In September, M3 money supply grew at a 8.4 percent pace, down from 8.7 percent the month before. Other economists said it might be getting harder for the Bundesbank to consider cutting rates when other nations such as the U.K. are lifting theirs.