French central bank recommends cut in popular savings account interest rate

PARIS (Reuters) -French Finance Minister Eric Lombard decided on Wednesday to lower the regulated interest rate on popular tax-free savings accounts, offering French banks relief from payouts that exceed those offered by European peers.

The ministry said Lombard was following a recommendation from Bank of France Governor Francois Villeroy de Galhau to lower the rate to 2.4% from Feb. 1 from the current 3%.

The Finance Ministry generally follows the central bank's recommendations for the interest rate, which has implications for banks' asset-liability management.

French savers had a combined 427 billion euros ($440 billion) in Livret A accounts as of the last count dating from November, plus another 155 billion euros in similarly regulated LDDS accounts, according to the Caisse des Depots, a public sector finance body.

The central bank makes its interest rate recommendation according to a formula based in part on inflation and short-term interest rates, aiming to give savers a slight real return over inflation.

The prospect of a cut in the interest rate that the government obliges banks to pay savers on the accounts comes as some investors in European bank shares take a fresh look at French opportunities.

Jupiter Asset Management fund manager Guy de Blonay said a cut would help French banks that have not benefited from higher interest rates over the past few years to compete more effectively for investor cash versus European peers.

"Europe has a two-speed banking sector. France is on one side, and countries like Italy and Spain are on the other," he told Reuters. "The expected cut to the Livret A rate may help to alter that, although political and economic uncertainty will continue to affect French banks."

($1 = 0.9699 euros)

(Reporting by Leigh Thomas; Additional reporting by Sinead Cruise in London, Editing by Sudip Kar-Gupta, Philippa Fletcher and Gareth Jones)