Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, February 5, 1993 TAG: 9302050092
SECTION: BUSINESS PAGE: A-7 EDITION: METRO
SOURCE: Associated Press
DATELINE: LENGTH: Medium
A BOOST FROM ABROAD
Germany and Japan applied the tonic of lower interest rates Thursday to stimulate their ailing economies, a move that sent positive ripples throughout the world and could have a particularly beneficial impact in the United States.The cuts in lending rates by the two most important U.S. trading partners were modest, but they came as the U.S. economy was showing emphatic signs of expansion anyway. The U.S. stock market hit a record high on the news.
Economists said the lower rates would help keep lending rates low in the United States. If they are followed by more cuts, the results eventually could mean greater foreign demand for U.S. goods and services, further ensuring the economy's rebound.
Thousands of jobs are tied to exports, which account for about 12 percent of U.S. economic activity. Exports have slowed in recent months, partly because of the economic problems in Japan and Germany.
"Those markets are essential if U.S. trade markets are to be improved," said Michael Hutchison, economics professor at University of California at Santa Cruz and a visiting scholar at the Federal Reserve Bank of San Francisco. "This signals good news for U.S. exporters."
In Europe, the German rate cuts could ease the instability among neighboring currencies, which have been battered by speculative selling since last summer because of the German mark's strength, said Larry Kantor, chief European economist for J.P. Morgan & Co. in London.
Germany's neighbors repeatedly have called on Germany's central bank, the Bundesbank, to reduce rates. That would lower the value of the mark, Europe's dominant currency, and make other currencies more stable.
The Bundesbank cut two interest rates: the Lombard rate from 9.5 percent to 9 percent and the discount rate from 8.25 percent to 8 percent. The Lombard rate is an emergency overnight lending rate; the discount rate is a loan fee to banks. Both influence other lending rates.
Earlier Thursday in Tokyo, the Bank of Japan cut its discount rate by 0.75 percentage points to match an all-time low of 2.5 percent.
Analysts said Japan's rate cut was less significant than the German move because the Japanese rates weren't an element in the currency market turmoil. But the cut still signaled Japan's determination to stimulate its economy, a move that had been sought by the United States.
It was unclear whether Germany and Japan coordinated their actions, but the timing was fortuitous for the United States, where it combined with a spate of positive news about the economy to incite a powerful rally in the stock market. The Dow Jones average surged nearly 43 points to a record of 3,416.74 in some of the heaviest trading in years.
Germany's severe economic problems have their roots in the fall of the Berlin Wall. Reunification of the two Germanys has cost billions of dollars, and the Bundesbank has kept interest rates high both to attract foreign investors and to resist inflation.
That strategy set off a wide imbalance between the value of the German mark and other European currencies. Foreign exchange dealers have been making big speculative bets against the weaker currencies, which has seriously undermined Europe's system of keeping exchange rates stable, critical to the region's economic integration.