Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: bobby beara who wrote (16842)	8/28/1998 9:01:00 PM
From: goldsnow	Respond to of 116823

They have tried to kill a golden gooze....my kids know this story but no... Russia crisis may force ECB to ponder low repo 10:22 a.m. Aug 28, 1998 Eastern By Scott Miller FRANKFURT, Aug 28 (Reuters) - The financial crisis engulfing Russia may force the European Central Bank to launch monetary union with interest rates markedly below the levels previously expected, central bank sources said on Friday. Experts have for months forecast that the ECB, due to take control of monetary policy for the 11 Euroland nations in January, would kick off monetary union with short-term interest rates around 3.50 percent. But with global markets staggering under fears of economic crisis stretching from Tokyo to Moscow to Mexico City, an increasing number of analysts are wondering if the ECB might favour lower interest rates to keep European economic growth as strong as possible. ''Official interest rates should converge at 3.30 percent, against our previous forecast of 3.5 percent at the start of the year,'' said Joachim Fels, economist at Morgan Stanley Dean Witter. A decision to launch the euro with short-term rates based on a securities repurchase rate of 3.30 percent would make life easy for nations like Germany and France which already have set their repos at that level. But it would be a blow to nations like Spain and Ireland where the repo rate is higher -- above six percent in Ireland's case -- requiring them to cut their interest rates further than expected. Such countries, with relatively easy monetary policies, would have to slow growth through tax increases -- always politically difficult. Central bank watchers said the ECB was increasingly likely to adopt a 3.30 percent repo because the entire globe now appears to be facing the threat of sluggish economic growth. And although a 20 basis point increase in the repo rates in Germany and France might not have much impact on their economies, it could send a negative signal to financial markets which have already fallen steeply from highs reached earlier in the summer. ''We still have to wait and see how events evolve over the next couple of months, but a 3.30 percent repo appears to be the more approprate rate for Euroland,'' said Markus Schulte, economist at Stone & McCarthy Research in London. A 3.30 percent repo could be of some benefit to Germany and France, as economic growth in the two nations has lagged behind other European nations and inflation in both nations appears well in hand. Indeed, some economists believe low rates are key to stimulating investment which is needed to put Germany's economic recovery on a broad, domestically-driven base. ''In my view Europe must clearly lower interest rates in order to prevent us from falling into a deflationary spiral,'' German Institute for Economic Research (DIW) chief economist Heiner Flassbeck told Reuters. Although speculation about a 3.30 percent harmonised repo is growing, many economists still expect the ECB to guide rates toward 3.50 percent as has been expected. ''The main risk is that the emerging market turmoil will deepen and force a lower repo, but we still expect a 3.50 percent rate,'' said Jose Luis Alzola, economist at Salomon Smith Barney. But he added that he has lowered his expectation for interest rates once monetary union is started and expects the 3.50 percent repo to last well into 1999. The key to ECB policy, many believe, will be how long and how wide-spread Russia's financial crisis becomes. A particular concern is whether it will spread to South America which has closer trading and investment ties with Group of Seven nations, including the United States. ''The U.S. Fed's next move could be down and that could give Europe some room on interest rates,'' Gernot Nerb, chief economist at the Ifo economic research institute in Munich said. ((Frankfurt Newsroom +49 69 756525, frankfurt.newsroom+reuters.com)) Copyright 1998 Reuters Limited.