Major industrial nations, led by West Germany and Switzerland, moved yesterday to boost their interest rate structures in an effort to fight inflation and to assure that their currencies will remain strong in the public's perception.
In Frankfurt, The West German central bank raised the official discount rate from 6 to 7 percent and the Lombard rate from 7 to 8.5 percent. In Zurich, the discount rate was boosted from 2 to 3 percent and the Lombard rate from 3 to 4 percent.
The discount rate is the price the central banks charge on loans to commercial banks. As in this country, it is a key tool used to push the interest-rate structure higher and dampen business borrowing. The Lombard rate, which is a notch higher, is the interest charged for loans secured by securities rather than cash.
On Wednesday, Belgium had boosted its discount rate from 10.5 to 12 percent. Earlier Japan had raised its rate to 7.25 percent, and the Federal Reserve had set the U.S. discount rate at a record 13 percent.
German central bank President Karl Otto Poehl told a press conference in Frankfurt that the move there was aimed at "giving a signal to the public" that the German mark will remain a hard currency. He said the higher rates would help maintain German economic stability and minimize inflation, but wouldn't lead to significantly higher domestic interest rates.
Exchange-date markets had more or less anticipated increases in the German discount rates following the most recent action of the Federal Reserve in Washington, which widened the differentials between the higher American interest rates and those in Germany. The peak levels of interest rates here have been a factor in attracting investment flows into the United States and stabilizing the dollar.
In a speech here yesterday to the American Enterprise Institute, former German central bank president Otmar Emminger played down talk of an "interest-rate war" between West Germany and the United States.
Rate increases by both the German central bank and the Fed have been in response to domestic inflationary pressures, Emminger said. But he added: "At present it's rather the Federal Reserve that has resumed the leadership in the international escalation of interest rates, and we have maybe occasionally to adjust."
Emminger said that the game n the exchange markets at the moment is really "inflation differentials on the one side versus interest rate differentials (on the other).