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11 February, 1999
Deutsche Bank yesterday painted a rosy outlook for Greece's economy, interest rates and equities in a report on the outlook for European markets.
The German bank expects the general index of the Athens Stock Exchange to end the year at 3,600 points from around 3,200 points currently, recommending that investors should buy into Greek shares.
It also forecasts that the central bank's 14-day money market intervention rate, currently at 12 percent, will drop by one percentage point by the summer, and to 8.5-9.0 percent by the end of 1999.
In the report, Deutsche Bank underlines that Greece has retained its strength in a global economy facing a slowdown in growth and high foreign exchange risk.
The domestic economy is still making rapid progress towards alignment with the European Union and entry into economic and monetary union by the government's target date of January 1, 2001, thanks to declining inflation.
The bank says that another drachma devaluation before joining the Euro had become increasingly unlikely.
It underlines, however, that a slowdown in underlying inflation and the government's sluggish privatization program remain causes for concern.
Deutsche Bank remains positive on the future of Greek stocks, despite their high price levels, due to the prospect of a sharp decline in interest rates in the next two years.
Investors seeking drachma investments, EIU says:
Market players are enjoying drachma investments, wagering that the government will meet its target of joining the Euro by January 1, 2001, the Economist Intelligence Unit (EIU) said in a report.
Describing the drachma as a favorite currency among players since the Euro's launch, EIU said investors were also drawn by differentials in short-term drachma rates, and spreads between Greek bonds and securities from other European Union countries.
Drachma bonds were flourishing in the Euro market, with heavy demand spurring new issues. In January alone about 1.2 billion dollars' worth of drachma paper was issued, the report said.
The drachma, whose volatility against the Euro is restrained by its membership of the EU's exchange rate mechanism II, has risen sharply against the single currency due to capital inflows from abroad for placement in Greece.
At the same time, enthusiasm for the drachma will not last indefinitely, EIU said.
The consensus to emerge from analysts who contribute to EIU forecasts was that on a short-term basis (three months) the drachma's parity would be 339 against the Euro, in one year sliding to 350 versus the single currency.
The drachma was likely to remain steady overall against the dollar, the report said.
Source: Athens News Agency