The Association of German CooperativeBanks said in a financial survey that domestic interest rates
would continue to remain low for the time being.
    It said the Bundesbank could hold them down despite strong
foreign influence and it saw no interest-straining factors in
the economy that could affect the long-term capital market.
    The inflation rate of one pct also gave no occasion for
higher nominal interest rates. But a probable rise in inflation
late this year could give very slight grounds for a rise in
nominal rates at year's end and next year, it said.
    The association said generally low interest rates,
prospects of lower taxes, a stable dollar rate and expected
strong domestic demand led it to believe that the investment
climate would remain friendly and the economy would continue
its slow but very sure growth.
    The Bundesbank had managed successfully to keep interest
rates down on the short-term money market although its policies
had exerted little effect on the long-term capital market,
which was so important for investment financing and thus for
the course of the economy, it said.
    In view of the limits to the possibilities monetary policy
had in influencing the longer-term capital market, the
association saw little sense in wanting to boost the economy
through a short-term and expansionist monetary policy.
    On the other hand it also saw no reason for sticking
dogmatically to the money supply target for the whole of 1987.
    The association said time would show to what extent
speculative foreign money and short-term invested domestic
money would distort money supply developments. The Bundesbank
could hold down money market rates with the highly effective
instrument of sale and repurchase transactions, it said.
 Reuter
