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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: NickSE who wrote (20372)	9/12/1998 6:24:00 PM
From: NickSE	Respond to of 50167

SOURCES: COORDINATED G-7 RATE CUT UNLIKELY AT THIS TIME By Steven K. Beckner Market News International - With Group of Seven and Group of Ten officials slated to meet early next week -- well in advance of their regularly scheduled meetings -- there continues to be speculation about a coordinated cut in interest rates among the major industrialized countries, but informed sources say that is unlikely. Whatever the Federal Reserve may decide to do on its own with the short-term interest rates it controls, chances of a multilateral rate cut are fairly slim, G-7 monetary sources say. There is hope, however, that Bank of Japan may soon cut its lending rate from an already record low 0.5%, possibly in response to a Fed rate cut, following this week's cut in the overnight call rate. G-7 finance ministers are meeting Monday in London to discuss world economic problems, and Tuesday in Paris G-10 deputy finance ministers and central bankers will hold an extended meeting under the auspices of the Organization for Economic Cooperation and Development's so-called Working Party 3. The Fed denied a rumor that Fed Chairman Alan Greenspan will participate. Greenspan and his foreign counterparts will be meeting with G-7 finance ministers at the time of the annual meetings of the International Monetary Fund and World Bank in early October. As another tumultuous week in world markets drew wearily to a close, there were growing indications that a consensus is emerging among Fed officials in favor of a 25 basis point cut in the federal funds rate from 5.5%. An easing move could come as soon as the Sept. 29 Federal Open Market Committee meeting, although sources say action at that time is not yet predetermined and could be delayed. A coordinated rate cut among G-7 or G-10 central banks cannot be ruled out if global economic and financial conditions continue to deteriorate, but at this time sources say such a move would be problematic, despite the raging fires consuming equity values and threatening financial institutions throughout the world. The biggest obstacle to a coordinated rate cut is Europe, where fairly wide interest rate spreads exist among prospective members of European Monetary union and where the objective is to converge rates by the time union is consummated January 1. It is also uncertain whether Japan is ready to lower its rates. A Fed rate cut might make it more feasible for the BOJ to do so, sources say, but there has been little indication from Tokyo that it is ready to use what little leeway it has left to cut rates. And a Japanese rate cut would tend to undermine the yen, whose recent rebound sources attribute primarily to the unwinding of yen carry trades, in which hedge funds in effect borrowed yen at low interest rates and converted into dollars and other currencies for high yield investments that have since soured. Longer run fundamentals dictate a significant weakening of the yen, they say.