While the two-week repo rate was maintained at 2 percent, the bank maintained the discount rate at 1 percent and the lombard rate
at 3 percent.
The bank's Monetary Policy Council has raised the benchmark seven-day intervention rate to four percent, the rediscount rate to 4.25 percent, the Lombard rate
to 5.50 percent, and the deposit rate to 2.50 percent.
The central bank also said it will cut the Lombard rate
to 0.50 from 0.75 per cent, and start paying interest on commercial banks' excess reserves held on account as one way to continue easing strains in the money market.
The banks submit to the Central Bank discountable commercial paper (discount policy) or mortgage certificates of deposit (Lombard rate
policy) in order to obtain short-term loans from the Central Bank.
This put the so-called Lombard rate
, which the CB charges to banks borrowing overnight with government securities as collateral, up to 8.0 percent from 7.5 percent.
For the case of the Bundesbank, our estimates suggest that the Lombard rate
(a rate analogous to the discount rate in the United States) is a marginally better indicator of policy than the call rate, a short-term rate that has been used often as a policy indicator in previous studies.
During the fall of 1990, the repo rate had approached the lombard rate
, which meant that banks were increasingly using the lombard facility for their regular liquidity needs and not as the emergency facility for which the Bundesbank intended lombard loans to be used.
The Austrian national bank lowers the discount rate by 1/2 percentage point to 4 per cent and the Lombard rate
by 1/4 percentage point to 5.25 per cent.
In response to rising inflationary pressures and exchange market turbulence, the Bank of Italy tightened monetary conditions in February 1995, raising the discount rate by 3/4 point, to 8 1/4 per cent, and the rate on fixed term advances (Lombard rate
) by 1 1/4 points, to 9 3/4 per cent.
Subsequently and until mid-1992, policy-controlled interest rates were raised 12 times, culminating in July with a discount rate of 8 3/4 per cent and an unchanged high Lombard rate
of 9 3/4 per cent.
These rates were also influenced by fears that the German Lombard rate
would be raised to promote price stability.
As a result, the flexible lombard rate
fell by 1 1/2 percentage points to 9.5 per cent in September 1990 and the Swiss franc-Deutschemark short-term interest rate differential turned negative again.