INTEREST RATES.

Hokitika Guardian, 12 February 1924, Page 4

INTEREST RATES.

WELLINGTON, Feb. 7. The co operative borrowing .scheme of the Commonwealth and the States is hound to have an adverse effect on interest rates in New Zealand. Under ibis scheme tax-free issues cease, and alf new issues are to be subject to Federal income-tax, which is only about Is in the 2, which is a mere trifle compared with the New Zealand rate. The maximum rate of interest is to he (j per cent., and this for the time being promises to be the minimum rate, for the Victorian State Government is accepting money over the counter at (i per cent., and the Federal Treasurer, Hr Earle Page, is inviting applications for .£19,000,000 at d per cent, at par. The rate is a high one compared with what has been ruling and the immediate effect in Australia must be to raise the deposit rates, the mortgage rates, and the overdraft rates, and these will be reflected in New Zealand.

In bis speech at the annual meeting of shareholders of the Rank of New Zealand on June loth. 1923. the chairman 'Sir George Elliot) in retelling to the overdraft rale said: “Comparison is sometimes made between Miiding rates here (New Zealand) and those ruling in London, but such a comparison is absurd, the condition P„ing entirely diil'erent. Australian rates ecri aml v bear a close relation io mus. although banks in New Zealand are subject to a much higher income-tax.’’ Ho said further: “'Mortgage rates, like the overdralt rate arc to a large extent governed by !hose ruling hi Australia. Last .veal' the Federal Treasurer endeavoured to raise £2-).('90,000 at under ’• | "f cent.

hul the issue met. with -ueh a poor response that it was withdrawn and au amended prospectus issued with .1 higher rate of interest (•’> per cent), but even then the issue was in*l Lilly subscribed. The Federal Treasurer is not running any risks on this occasion, and the ell’ect of 0 per cent must he to raise the rates for deposits, mortgages, and overdrafts. This adverse movement must he reflected in New Zealand. We have four hanking institutions operating here that ate more or less governed from Australia, and it is hardly reasonable In suppose thru they will lie content to make advances in New Zealand at low raMs wlmn mere attractive rates can he obtained in Ausiralia. Then there arc the large Australian Mutual Provident, the National Mutual Lite, the .Mutual Life and Citizens, the Temperance and General, besides a number ol lire insurance oflice-., and it will he a strong temptation In these institutions in iiive-imeiu in Australian securities ■in preference to New Zealand. Furthermore, ami trade balance is against New Zealand. Our imports from ■l l ■ exports in Austndia for last year were as follow':C Imports -I,‘-’03,0-17 Exports 2.1 i 11.970 Excess of imports Idill.-Mi The measure of our debt to Australia on the trade balance is L'ld'd 1.7)77. and this can he called up. To protect the loanable credit with in the (uimtr.v the rates here must he brought up to a parity with tlnee ruling in Australia, otherwise the money will flow out, a sea roily would then exist and rates would automatically advance.