Central bank money stock was growing at about seven pct in the first quarter of 1987 down from 9-1/2 pct in the second half of 1986 so there are signs that the pace of growth is slowing even though it is still above target the Bundesbank said in its 1986 annual report. The Bundesbank set a target range of three to six pct growth from fourth quarter 1986 to fourth quarter 1987 for central bank money stock. In the previous year it grew 7.7 pct outside the 3-1/2 to 5-1/2 pct target range. The Bundesbank noted that monetary policy in 1986 was limited by a series of external factors. These included the revaluation of the mark growing foreign payments surpluses of non-banks and currency inflows. The Bundesbank therefore tolerated the monetary overshoot in 1986 as an attempt to counter monetary expansion with interest rate and liquidity moves would have increased upward pressure on the mark it said. The lower end of the 1987 target range would be realistic if a large part of funds currently held in a liquid form were invested in long-term bank accounts or bonds public bonds or foreign securities the Bundesbank said. But if companies and private households continue to hold their funds in liquid forms or if there are further currency inflows growth will be closer to the upper end of the range. The more the conflict between external constraints and domestic objectives relaxes -- and many things point to this at the time of writing this report -- the more possible it will be to do justice again to the medium-term concept of money supply control the Bundesbank said. It noted that prices were beginning to tend upwards again at the start of 1987. There would be virtually no easing of other production costs in 1987 to compensate for the rise in unit-wage costs. Nevertheless no inflationary trends are likely to set in this year the Bundesbank said. A link between excessive monetary growth and intensifying price rises can only be observed in the long term it added. The continuing trend for non-banks to switch into long-term borrowing to take advantage of low interest rates while for the same reason shunning long-term investments increases the risks in changing interest rates for banks refinancing themselves with variable-interest deposits it added.
SIGN OF SLOWING IN GERMAN MONEY GROWTH -BUNDESBANK