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German call money

swimming in funds

at month-end

FRANKFURT: German call money rates eased on Wednesday, as a generous liquidity addition at the weekly repo provided the market with plentiful funds to cope with the month's end.

Dealers said rates were trading mostly at 4.25/30 percent, down from 4.30/4.35 percent on Tuesday.

"Rates started at 4.30/4.40 percent but sank to 4.20/25 percent in a euphoric reaction to the very good add," a dealer at a key German bank said.

The Bundesbank injected a surprisingly high 2.9 billion marks. A nine b.p. repo rate drop was within expectations.

"I don't think they'll be any Lombard borrowing tomorrow," a dealer at another Frankfurt bank said.

Typically, call money rates soar to the Lombard ceiling at month's end as banks scramble to secure funds to meet reserves.

But plentiful liquidity, coupled with comfortable reserve levels, should make this less necessary, dealers said.

On Tuesday, daily reserves had slipped to 34.4 billion marks from 35.1 billion the prior day. But monthly reserves rose to 36.3 billion marks from 36.4 billion.

Lombard borrowings were 200 million marks.

"It's possible that rates could come under further pressure for technical reasons later in the day. But I don't think they will fall under 4.15 percent," a dealer said.

Dealers said they expected upcoming repo declines to be smaller, more on the order of five basis points.-Reuter