Bank Of Spain Rate No Surprise, Room For More: Amplifier

By Robert S Duncan

16 May 1997

Dow Jones International News

The Bank of Spain's decision Friday to cut its key interest rate by 25 basis points to 5.25% surprised nobody.

The good news is that there is still room for interest rates to go even lower, analysts said.

The benchmark, or key, rate is Spain's main monetary policy instrument. Prior to Friday's rate cut the Spanish central bank last altered its benchmark rate April 15, cutting it to 5.50% from 5.75%.

Friday's rate cut is the fourth time the Bank of Spain has cut rates in 1997.

'The reaction has been mute. The rate cut was perfectly priced in. On the long-end of the (yield) curve there is no movement,' said Shahab Jalinoos, bond analyst at IBJ Research in London.

The 10-year 7.35% benchmark bond due 2007 at 0821 GMT was at 106.00, flat from late Wednesday, to yield 6.50%.

Spanish markets were closed Thursday for a Madrid holiday in honor of its patron saint, San Isidro.

'I would have thought that there would have been more of a reaction. There were some people thinking maybe it would be a 50-basis-point rate cut. It's pretty dull,' said Jalinoos.

Even the Spanish peseta moved little early Friday following the widely-expected quarter-point rate cut.

At 0821 GMT, the mark was at 84.39 pesetas, up from 84.37 pesetas earlier Friday but off from 84.49 pesetas late Wednesday.

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