THE MONEY MARKET

Hokitika Guardian, 5 February 1926, Page 4

THE MONEY MARKET

ADVERSE OUTLOOK. VIEWS OF SIR. H. BEAUCHAMP. At the annual meeting of .shareholders of the Equitable Building and Investment Company of Wellington, the chairman (Sir Harold Beauchamp), in dealing with the monetary position in New Zealand, said: “It is probable that this year attention will be focussed on money and markets, and there are indications that the economic conditions of the country will necessitate very careful handling. If is my opinion that money in New Zealand will lie both scarce and dear, and I incline to this view because of tho monetary movements in London and New York.

The advance in the re-discount rate of New York Federal Reserve Bank from 3.1 per cent to 4 per cent, though primarily intended to eliminate speculative features in American Stock Exchanges, must have an influence on the monetary situation in London. A year ago, when the re-discount rate of the Federal Reserve Bank of New York was raised from 3 per cent to 3.J per cent the Bank of England found iL necessary to raise its discount rate from 4 per cent to 5 per cent. That was early in March last year before Britain had reverted to the gold standard. and may have had some relation to that event! However, it is important to bear in mind that New York now dominates the world’s money markets, and London cannot, act independently of New York as she was aide to do prior to the war. The Bank ot England rate may not he raised as the result of the movement in New York, Imt it will certainly prevent any reduction in the rale. Furthermore, there is evidence that with the embargo on tlso issue of foreign and colonial loans removed there is hound to he a big rush of borrowers on the London market. Two foreign loans, one for a million and another for four millions, were rushed by eager investors : while the Queensland loan of £2,500.000 and the South Australian loan of £1,800,000 failed to attract investors, for the underwriters were' left with 68 per cent of the Queensland loan and with 63 per cent of the South Australian loan. The two Australian >State loans carried 5 per cent, and are nil the trustee list, lint, the two foreign loans issued carried 7.1 per cent, and this is what attracted investors. It is apparent that dominion loans must compete with these foreign loans, and iL is obvious that a 5 per cent late is ineffective. Underwriters cannot he expected to

nurse the bulk of colonial issues just for the pleasure of.doing so. The dominions borrowing in London must expect to pay something more than 5 per cent bv wav of interest. LOCAL RATES. “The rates rating in New Zealand must hear some relation to those ruling in the world’s monetary centres. IVe know that those borrowing from the Advances Department must pay higher rates than were current last year. Loans to workers now hear Of per cent; oil loans other than for redemption of mortgages. Of per cent ; on loans for redemption of mortgages, (U per coni ; and on loans to local bodies, 0 per cent —all subject to rebates on prompt payment, but plus sinking funds. Loans for buildings on a 3(3-1 years’ term will involve (lie payment of G:1 per cent, assuming prompt payment. The hanking returns for the past quarter show that the process of leaning on the banks to a greater extent that usual has begun, and the advances show an increase of £2,617,87.3, while the deposits have increased by only £1,35.T.8G3. Tho bankruptcy returns arc also adverse, for there wore approximately 059 bankruptcies last year, or 15 more than in 192-1, with farmers again in the load. PRODUCE MARKETS. “When we review tho stale of the produce markets wo have to realise that wool, frozen meat, butter and cheese are all realising lower prices than a year ago; and so far as wool and meat are concerned this drop is most pronounced. 1 estimate the loss of income, owing to the decline in market values. at approximately £12,000,090; and wool and meat will he responsible for about three parts of the

total. Because of this the margin between exports and imports will lie very narrow, and unless (lie Government and local Indies borrow largely outside of the Dominion I lie demands on the hanks will he very pronounced. With the contraction in the value of our exports the people will have loss opportunity of saving; consequently there will be less new capital available to meet the increasing demands of borrowers, many of whom will he obliged to go without or greatly modify their demands. With a shrinkage in the spending power domestic trade will

contract, and that will mean a certain amount of unemployment. The call ol the moment is for economy—strict and stringent, economy in all departments of the Slate in particular, ft would

also he very helpful if the State interfered less in commercial affairs. Control Boards, pools and embargo are not conducive to expanding business. After all, it is on the efforts of the individual that the prosperity of tho country depends, and not on the Government control of industries and embargo on imports. MEAT INDUSTRY. “If there is one industry in the country that is in a parlous'condition, it is that of meat freezing. Most of the freezing companies made heavy losses in the past season, and to-day mutton and lamb are selling at 15 per cent to 20 per cent below the rates ruling last year. But this is not all, for, owing to the adverse climatic conditions, less fat stock will be available.