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The Bundesbank is unlikely to change credit policies when its central bank council meets on Thursday for its last session before the Venice summit, banking economists and money market dealers said. The Bundesbank steered money market rates lower last month by cutting the rate on its security repurchase pacts, and is unlikely to cap this move with a cut in leading interest rates in the near future, they said. The council will meet in Saarbruecken, and the meeting will be followed by a news conference at around 1030 GMT. But Bundesbank officials noted that a news conference was usually called when the council meets outside Frankfurt, and did not necessarily herald any policy moves. Bundesbank Vice-President Helmut Schlesinger said today there was no reason to cut interest rates because money supply growth had shown no signs of slowing in May and the dollar was stable against the mark. Schlesinger told Reuters in Tokyo, where the Bundesbank has opened a representative office, that the West German economy was now picking up after contracting by a seasonally adjusted 1/2 to one pct in the first quarter. Money market dealers said call money was likely to hold in a 3.50/70 pct range for most of this month, after the Bundesbank switched last month to tenders by interest rate at a minimum bid rate of 3.50 pct, allocating funds at 3.55 pct. “They have set this signal and indicated they could maybe lower market rates even further, but not with the discount or Lombard,” Winfried Hutmann, chief economist of Schroeder, Munchmeyer, Hengst Investment GmbH said. Werner Chrobok, managing partner at Bethmann Bank, said German rates were among the lowest in industrial countries and around historical lows for West Germany. A further cut in rates would have little impact on the economy as banks are in any case reporting slack credit demand, with companies swimming in liquidity, Chrobok said. The Bundesbank would therefore be reluctant to make a move on interest rates, when this would be better held in reserve. “The Bundesbank is frightened of using up its powder,” he said. A cut in the discount or Lombard rates, to bring them in line with the new structure of money market rates since last month, would have little practical significance, dealers said. The Bundesbank could therefore act on these if it wanted a diplomatic gesture before next week’s Venice summit. But Bundesbank President Karl Otto Poehl has often made it clear in the past he opposes such gestures as mere “eyewash.” Economists said it was really up to the Bonn government to cut taxes, rather than for the Bundesbank to ease monetary policy, to meet pressure on West Germany at the Venice summit. But with Bonn struggling to finance already announced tax cuts and falling tax revenue widening the federal budget deficit, it is hard to see how Bonn could cut taxes further. “The Bonn government will be in a very weak position in Venice because they can’t risk increasing the deficit further,” said Schroeder, Muenchmeyer, Hengst’s Hutmann. Bethmann’s Chrobok said if anything is to happen before Venice, it must be in fiscal rather than monetary policy. “But I don’t expect any convincing measures,” he said. Money market dealers noted that call money continued to normalize today, falling to 3.60/70 pct from 3.75/85 yesterday and as much as five pct on Friday when it was pushed up by month-end distortions. Call money could come under upwards pressure later this month because of a major round of tax payments by banks on behalf of customers, starting in the week beginning June 15. Two public holidays that week could also distort the market. Dealers said they expected the Bundesbank to allocate funds tomorrow in the latest repurchase pact at an unchanged 3.55 pct, after setting an unchanged minimum bid rate of 3.50 pct, and to fully replace the 5.5 billion marks in an outgoing pact. But dealers said it was possible the Bundesbank would allocate funds at 3.6 pct rather than 3.55. That would not represent a tightening of policy, however. Because the Bundesbank scales down bids which it allocates at the minimum accepted rate, some banks may try to get a full allocation by bidding heavily at 3.6 pct, dealers said. On another issue, Poehl has said the Bundesbank is likely to lift restrictions on private use of the European Currency Unit (ECU) at one of its meetings soon. Saarbruecken would be a suitable place for an announcement on this gesture to European unity, as it is the capital of the Saarland bordering France, and was twice under French occupation this century. But dealers said an ECU announcement was unlikely to come this week, as a number of technical and legal matters had still to be resolved, for instance how German ECU accounts would be treated for minimum reserve purposes.