MONEY MARKET

Hokitika Guardian, 1 August 1924, Page 1

MONEY MARKET

RANK OF ENGLAND RATE. AUCKLAND, July 2>. Relative to tlio reported intention to increase tbe Rank ot England rate, the Federation of British Industries lias sent a letter to the governor of the Rank of England, drawing attention to the adverse effects upon enleriri.se of the report of the Currency Nommittee, 1919.

The letter added that similar effects it present would be most serious lor British industry.

The question of tin alteration in the Hank of England rate is not without much significance lor Xew /calami borrowers, and the New Zealand moneymarket generally (says the -'Auckland Star’'' Any advance in 'he official rate would menu that loan commitments falling due for redemption or conversion in'*'London would not be met on such favourable terms as would otherwise he possible, while the relative dearness of borrowing abroad would almost certainly be reflected in tlie rates of interest that would he offered for loans locally. Indirectly, additional pressure, which would, in all probability, he thrown upon the Xew Zealand credit supply, would tend to raise discount and overdraft rates, and generally t<> exercise a restrictive influence on production and business.

EFFECT AXI) ADVAXCI

The committee oil currency and lorej,,„ exchanges, of which Ford ( unlilfe (governor of the Hank of England) was chairman, was appointed in THIS to consider and report upon post-war currency- and foreign exchange problems and the steps necessary to bring about normal conditions. The report included an explanation of the pre-war automatic operation of the Hank ol T.ngj., ,id rale of discount in maintaining IK-' bank's ratio of cash reserves to liabilities, and went on to point out that "the raising of the hanks disillnt rate and the steps taken to make it effective in the market necessarily led to a general rise of interest rates and a restriction of credit. Xow enterprises were, therefore postponed, al ,d the demand for constructional materials and other capital goods was lessened. The consequent slackening employment al-o diminished the demand for consumable goods, while the bolder- ol Stocks of commodities carried oil largely with borrowed money, being coufrontcd with an increase of interest charges, if not with actual difficulty in renewing loans, and with the prospect of lading prices, tended to nrcss their goods oil a weak market The result was a decline in general price- in the home market, which, by dunking imports and stimulating exports, corrected the adverse trade" balance, which was the primary cause of the difficulty. Though Hrilish currency to-day ts ine,invertible, and the automatic check „f movement in the hank rate upon inward- and outwards How of gold no longer operates, the effect upon the money market of a raising or lowering of the rate would he substantially the same a< before 111'* war. LOWER 11ATF EROF.D. Reports of Loudon financial opinion bv the last Fngli-h mail indicated that lla-rc was a -t long feeling in many quarters that the hank rate should h • lowered. The point was stressed that the Federal Re'erve Rank of Xew York had reduced its rate from IV ]»* r cent to I per cent., thus placing the official Xew York rate on a level with that ol London. It was believed that there were evidences that the ease of business in America wa- in course of being reproduced in England. A reduction in the rate, it was urged, would be of groat benefit to British industry and trade, and borrowers in general'would be able to obtain accommodation on cheaper terms. Afaiket quotations for fixed interest securities would tend to rise, with a concurrent reduction in yield-. It was also emphasised that a reduction which placed the English rate lower than the American would tend to make the London capital market more attractive for foreign borrowers than that of Xew York.