Remarks by two leading central bankerssparked renewed speculation in financial markets that a cut in
the West German three pct discount rate may be under
discussion, currency dealers said.
    Bundesbank board member Claus Koehler said in a speech that
monetary growth resulting from speculative capital inflows
required cuts in interest rates.
    Separately, West Berlin state central bank president Dieter
Hiss told journalists that the discount rate could fall below
its lowest ever point of 2.75 pct. He made clear that he was
not making a forecast on interest rates, however.
    Currency dealers here and in the Far East said the dollar
gained slight background support from the speculation.
    But German dealers noted that the Bundesbank kept the 3.80
pct rate unchanged at which it offered liquidity to the money
market this week, dashing some expectations that it may either
offer lower fixed rate money or offer a reduced minimum rate
and let the strength of banks' demands set the allocation rate.
    It allocated 6.1 billion marks in new liquidity, much less
than the 14.9 billion leaving the market as a prior pact
expired. This further weakened sentiment the Bundesbank could
move to a more accommodative monetary stance, dealers said.
    Koehler said in a speech in Surrey, England, speculative
capital inflows may cause monetary growth, regardless of
whether central banks intervened or exchange rates fell.
    "In other words, the monetary policy measures required are
different from -- and sometimes diametrically opposed to --
those needed when the money stock is increasing as a result of
mounting economic activity."
    Though Koehler was known to be the most liberal of the
generally monetarist Bundesbank board, his comments marked the
first time cuts in rates had been concretely suggested as a
counterpoint to overly strong monetary growth, dealers said.
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