A cut of about half a percentage pointin Dutch official interest rates is still in prospect, although
economists said the timing would depend on Bundesbank moves.
    Speculation has been rife that the Dutch Central Bank,
encouraged by a strong guilder/mark relationship and wide
premiums for Dutch money and capital market rates over German,
might lower rates without the Bundesbank moving first.
    Last month, the Central Bank lowered its special advances
rate to 5.1 pct from 5.25 pct after the Bundesbank dropped its
repurchase tender rate to 3.55 pct from 3.8 pct.
    That rate has remained in force, just holding above the
five pct official secured loans rate which governs commercial
bank borrowings.
    Given a strong guilder, a further fall in the West German
repo rate would trigger a lower special advances tariff,
forcing an official Dutch rate cut, analysts said.
    In February, when the Bundesbank cut its discount rate to
three pct from 3.5 pct, the Central Bank only lowered money
market rates and removed a surcharge over the secured loans
rate on lending under its three month credit quota.
    Since then, however, both the Central Bank and Finance
Ministry have made it clear they favour lower official rates.
    In April, Central Bank President Wim Duisenberg said he
would follow any Bundesbank cut, and last week the Finance
Ministry expressed satisfaction when it raised 2.25 billion
guilders with a six pct coupon state loan priced at 100.10 pct
for an effective yield of 5.98 pct, the lowest since 1965.
    Technically, analysts said, there has to be a difference
between the secured loans rate which applies to lending under
the credit quota, and the tariff on special advances which add
extra liquidity to the money market.
    Bank economists and dealers said a West German move to
further lower the rate on securities repurchase pacts would
result in the Central Bank easing the special advance rate,
provided the guilder/mark relationship permitted.
    The Central Bank aims to keep the guilder stable around its
parity value within the European Monetary System of 112.673
guilders per 100 marks.
    Today, foreign exchange buying pushed the mark up 10
guilder cents to 112.705 guilders per 100 at the fix, a level
that would not permit a change in the interest rate
differential between West Germany and the Netherlands, dealers
said.
    An economist at ABN Bank said he expected West German and
Dutch interest rates to ease in the short term. However, he
said new wage agreements in West Germany had raised inflation
expectations which would put upward pressure on interest rates
in the longer term.
    In the Netherlands, the inflation outlook for 1987 is nil,
or even negative, while the latest official economic forecasts
point to a falling rate of economic growth.
    "It will depend on the outcome of collective wage agreement
negotiations here whether there could be cost push inflation,"
the ABN economist said.
    He said Dutch money supply growth, which ran at 3.4 pct in
January, could also contribute to some inflation.
    At Amro Bank, a leading analyst said inflation could run to
two pct next year. The bank expects Dutch capital market rates,
currently averaging around 6.1 pct, to stop easing in the
second half of this year and stabilize around 5.6 pct.
    Analysts said an official rate cut could trigger a buying
spree on the bond market which would bring yields down,
probably only temporarily, while money rates could fall below
five pct.
    Currently, all periods are traded at 5.12 to 5.25 pct in
the money market.
 REUTER
