SPAIN EXTENDS RESERVE REQUIREMENT

  The Bank of Spain has extended the
  reserve requirement for banks to their convertible peseta funds
  in an attempt to curb speculation in short-term capital which
  is currently fuelling money supply growth.
      In a statement issued late last night, the central bank
  said convertible peseta accounts, funds which are not subject
  to exchange controls, would also be subject to a 19 pct reserve
  requirement with effect from Friday.
      Convertible peseta funds had been previously exempt from
  reserve requirements.
      The measure comes one week after the central bank raised
  reserve requirements on domestic deposits by one percentage
  point to 19 pct, also with effect on Friday.
      Banking sources say the high real interest rates on offer
  now -- around eight pct for overnight funds -- have attracted a
  large influx of speculative foreign capital which is
  threatening the government's monetary targets.
      They say this influx is largely responsible for Spain's
  principal measure of money supply, the broad-based liquid
  assets in public hands (ALP), to have grown by an estimated 17
  pct annualised rate in February, compared with January's 8.3
  pct rise and an 11.4 pct rise during the whole of 1986. The
  target for 1987 is eight pct.
      The Bank of Spain today did not provide assistance funds to
  banks in a move to drain excess liquidity from the money
  market. Liquidity will be further tightened by the fortnightly
  Treasury Bill auction tomorrow and Friday's hike in reserve
  requirements, expected to absorb over 200 billion pesetas from
  the system.
      The immediate reaction was a hike in interbank interest
  rates today to 13.75/14.00 pct from yesterday's 13.46 pct
  average for deposits.
      Bank of Spain officials said this was an understandable
  response "given that the market is short of funds."
      But banking sources noted that a continued rise in interest
  rates would neutralize the central bank's attempts to curtail
  short-term speculation with foreign funds by making the Spanish
  money markets more attractive.
  

