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M3 ups Buba

discount cut chance,

this week unlikely

FRANKFURT: A surprise contraction in German M3 money supply increases the chances for a German rate cut, analysts said, but most still believed that the Bundesbank would hold its four percent discount rate steady this week.

Alison Cottrell, international economist at PaineWebber in London, said she stuck to her view that the Bundesbank would lead up to a late September rate cut with gradual repo cuts. "This reinforces this view," she said. "I think they will not want to use up all their fire power in one go." Hans Meltzer at Deutsche Bank said "The likelihood of such a step has increased. The chances have improved for a rate cut."

Jeremy Hawkins, senior economic adviser at Bank of America in London, told Reuters Financial Television that he expected the Bundesbank to follow up on its five basis point repo cut seen two weeks ago in this week's securities repurchase pact.

"I will certainly be surprised if we don't get a cut in the repo on Wednesday," he said. "I will be more surprised if there is a discount cut on Thursday."

Hawkins believed the Bundesbank would want to wait for more data on inflation, a view seconded by Meltzer. The Deutsche Bank economist also predicted a repo cut tomorrow followed by a decision to leave official rates unchanged.

Bundesbank council member Ernst Welteke said this weekend that he expected the Bundesbank to have price data indications from two or three regional states by Thursday. The data is due for release on Thursday and Friday.

But upcoming changes in the way in which price data is calculated, which are likely to cause a slight variation in the inflation level from the old calculation method, may make the Bundesbank uncertain until the new data is released.

There will be no preliminary figure released on the old basis for west German inflation this month. The final figures, calculated on the new basis, are expected in mid-September.

Similar changes in calculations have also severely delayed economic data for Germany so far this year. Data which has been released so far has carried a warning that it is unreliable.

This makes it harder for both the independent economists, and the central bank itself, to judge the state of the economy, although many economists believe the German upturn has slowed.

In the weekend interview, Welteke also refered to "pressure" on the Bundesbank to take action to help stimulate the economy, which he said had in part been relieved by last week's central bank intervention to push the dollar higher. A weaker mark helps German companies' export trade.

Burkhard Allgeier at Bank in Liechtenstein said he believed the weaker economy, the fact that the dollar was not necessarily stable at current levels and M3 and inflation developments all pointed toward a rate cut soon.

But he cautioned that although the July headline M3 figure was sharply lower, and the level was lower on average in the month, the Bundesbank had pointed out that M3 had grown moderately in the course of July.-Reuter