The Bundesbank has signalled it intends to hold its monetary policy tight in 1998, ensuring that no inflationary pressures can develop that could damage the embryo European single currency.

The central bank set a target corridor of 3 to 6 per cent for growth in the German money supply in 1998, marking a slight tightening in its control of the money supply from 1997, when the corridor was set at 3 1/2 to 6 1/2 per cent. "The Bundesbank is taking account of the continued ample supply of liquidity in the economy," a statement said. "It is also making clear that it wants to prevent the creation of an inflationary potential ahead of the third stage of European monetary union." The Bundesbank left its leading interest rates unchanged at the meeting, in line with economists' expectations.