FRANKFURT: IG Metall's new wage pact for salary increases below the inflation rate raised the chances that the Deutsche Bundesbank would ease interest rates again soon, economists and traders said.
''The Bundesbank should be popping the champagne corks on this one,'' said Burkhardt Erke, chief economist at Schroeder Muenchmeyer Hengst and Co.
Financial markets throughout Europe seemed to agree that the Bundesbank now had more room to lower rates. Most major stock and bond markets were higher in mid-morning trading.
Lower interest rates make stocks a more attractive investment than bonds and raise the demand for existing bonds as investors seek to lock in current rates before they move lower.
The Bundesbank has frequently urged that pay increases be held at or below the inflation rate as one of the preconditions for easier monetary policy.
IG Metall's agreement for 3.6 million western German metal and engineering workers calls for a two per cent wage rise from June 1. Spread over 12 months, however, the settlement amounts to just 1.16 per cent more pay.