COMMERCIAL Financial Squeeze Likely In June

Press, Volume CV, Issue 30960, 17 January 1966, Page 15

COMMERCIAL Financial Squeeze Likely In June

“Business confidence was checked in the final quarter of last year,” savs the latest quarterly survey by the Australia and New Zealand Bank, Ltd. “In spite of very high levels of activity in most areas of trade, there were signs that, belatedly, the economy was about to make the painful adjustment dictated by the lack of domestic and overseas resources.”

After mentioning the effects already apparent from the current credit squeeze, the bank continues: “On present indications, the full effects of the credit restriction are likely to become apparent early in the June quarter. At that time, the mounting liquidity shortage will have 'teen accentuated by March tax payments and the usual seasonal downturn in trading activity.” Borrowing

"In 1965, excessive levels of imports -nd other payments were maintained by running down overseas assets and by arranging foreign borrowings, including the £22.3m drawing from the International Monetary Fund. The tailend of the import boom can be expected to continue to strain the payments position, at least until the June quarter.

“Provided a predicted increase in wool prices eventuates, export earnings should show a very welcome improvement but, in spite of this, a substantial adverse balance on trade and other current transactions can be expected to continue for most of the year. Further overseas loan raisings will be required to maintain overseas assets at a viable level,” says the bank. “The attraction of funds away from the public is one of the primary aims of current Government policy. The success of this policy, together with the run-down in reserves of overseas exchange has sharply reduced the funds

available to the banking system and curbed its ability to lend. No substantial easing of this situation can be expected and the banks probably will be forced to maintain restrictive lending policies throughout most of the year irrespective of whether there is a change in Government monetary policy. Unpopular Task

“While the official policymakers will no doubt be under increasing pressure for an easing of present restraints, the credit squeeze has only begun to take effect and the balance of payments outlook does not suggest or justify any early relaxation. In fact, resolving the balance of payments problem is likely to be a lengthy and unpopular task. A fine degree of judgment will be required to improve the payments position and, simultaneously, to maintain full—but not overfull employment of labour and other resources.”