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09 January, 1998
National Economy and Finance Minister Yiannos Papantoniou yesterday reaffirmed the government's commitment to a "hard drachma" policy, amid renewed pressure on the Greek currency.
"A stable drachma is the cornerstone of our economic policy," Mr. Papantoniou said. "The government is determined, as it has shown in the past, to take and to continue to take all the necessary measures to support it".
He made it clear that he would not hesitate to increase interest rates to support the exchange parity of the Greek currency.
In earlier statements, Mr. Papantoniou had expressed optimism over the future of the Greek drachma.
"The drachma is doing well. The situation is under control but, if necessary, the government will intervene," he said.
The Bank of Greece intervened heavily in the domestic interbank market yesterday to defend the drachma, reducing liquidity and controlling a recent trend of capital outflows.
The central bank managed to reduce outflows significantly but interbank interest rates moved higher.
Banking sources reported outflows totaling US $55 million at yesterday's drachma fixing.
The Greek currency rebounded by 0.15 per cent against the Ecu and the deutschmark, recovering 0.10 per cent against the US dollar.
In the domestic interbank market, a move by the Bank of Greece to raise its discount rate to 23 per cent from 19 per cent pushed rates higher.
Earlier, government spokesman Dimitris Reppas stressed that there was no cause for concern over the latest round of turbulence in the domestic money market.
Mr. Reppas reiterated that the government would stick to its fiscal and monetary policies and urged all parties involved to contribute to defending the national currency by ensuring stability.
National Bank's Karatzas:
Meanwhile, National Bank of Greece Governor Theodoros Karatzas appeared optimistic that pressures on the drachma would ease soon.
"The economy's basic indicators are in their best shape ever, which justifies optimism for the future," he said during a luncheon hosted in Athens by the Foreign Press Association.
He stressed that the economy does have the strength and the leeway to face the side-effects of the temporary 'defensive' rise in interest rates, which from now on, would be adjusted faster than in the past.
Regarding the value of the drachma, he said its overvaluation amounted to no more than 2 to 4 per cent, which is not a substantial impediment to the competitiveness of Greek exports.
National Bank's Balkan Strategy
Source: Athens News Agency