Bundesbank Aims for Tight Money Policy - Schlesinger

The Bundesbank is trying to keep monetary policy tight in order to counter inflationary tendencies, Bundesbank Vice-President Helmut Schlesinger was quoted as saying.

“We are trying to keep the monetary framework tight, so that inflationary pressures cannot develop,” he told the Frankfurter Neue Presse daily in an interview.

“Central bank money stock does not have to be reduced because of this, but it must continue to grow modestly,” he said.

Bundesbank spokesmen were not available for comment.

On Thursday Schlesinger said in a contribution to the Handelsblatt daily that the accommodative monetary stance in West Germany caused by outside pressures could not determine policy in the long term.

The improvement in West German terms of trade, providing room for non-inflationary expansion of domestic demand in excess of output growth, put the overshoot of central bank money stock in a more positive light, he said on Thursday.

Central bank money stock, the Bundesbank’s main monetary measure, was growing at an annual rate of 7.3 pct in March, above the 1987 three-six pct target range.

Money stock overshot the 3.5-5.5 pct 1986 growth target.

Schlesinger told the Frankfurter Neue Presse that the phase of falling prices was over in West Germany.

Prices might still be lower on a comparison with their level one year earlier. But the cost of living index has risen to 120.7 in March from its November 1986 low of 120.0, expressing a slight rise in prices, Schlesinger said.

In March the cost of living was steady against February but 0.2 pct below March 1986.

Schlesinger said a rise of between one and 1.5 pct during 1987 would be acceptable, and effectively mean price stability.

Agreements so far in the current West German wage round are neutral as far as inflation is concerned because of the strength of the mark, Schlesinger said.

Wage agreements in the public service and engineering industry were relatively high in view of the stable cost of living. But the higher costs would be compensated for, he said.

“I am thinking above all of the fact that in the course of this year we will in all probability have a stronger mark against other currencies than last year,” he said, adding “Without this mark revaluation effect, we would have had to say that the wage rise agreements were not neutral for prices.”

Schlesinger said exchange rate movements had increased the scope for redistributing wealth this year, but this development was unlikely to continue in 1988.

“For this reason I cannot comment on that part of the engineering agreement which covers the coming years,” he said.

Some 2.3 mln workers for the public services received a 3.4 pct pay rise from January 1. An agreement for four mln engineering workers raised pay by 3.7 pct from April 1, and then raises pay by another two pct from April 1, 1988 and by 2.5 pct from April 1, 1989. The engineering agreement also cuts the working week by 1-1/2 hours to 37 hours in two stages.