WELLINGTON NEWS

Hokitika Guardian, 10 May 1930, Page 2

WELLINGTON NEWS

cheaper money

(Special Correspondent A

WELLINGTON, May 7

The Bank of England discount rate was on May lst-fl reduced from to 3 per cent, and this: brings money down to the lowest rate experienced in the post-war. i period. , t The last occasion on which' tlie Bank rate at 3 per cent uecanie effective. was on July 13th 1922, and remained in force for just about a week short of 12 months, for it was not until June sth. 1923, thai the rate-was changed when it was ad-vanced/'-'to 4 per cent. It is very probable that ' the present low rate of 3 per-cent, .will be, maintained for a year or .more;-, If /this is so then it will he powerful stimulant for trade and commerce. There are good reasons for believing that' the rate will be maintained ; for a considerable time, for the central hanks in New York, Paris and Belgium have .reduced their rate in conformity with the Bank of England,/ the,rate of the- Bank of- France is how 2} per cent, the lowest known for a good many years. This looks very much like a concrete movement, and is .no doubt _f.or, the .Economic Section of the League of Nations long ago urged co-operation,-on the part of the central batiks >sd : ias 'to prevent unnecessary export and import of monetary gold. The Bank of Ehgland rate was last year advanced to as high as 6£ peV 'ceiit.' in order to check the outflow of gpld. France and Germany were both drawing gold from London particularly the former, while owing ‘to the' high'rates ruling rushed across the Atlantic to .take advantage' of the high interest rates, and this' depressed sterling exchange and gold had to be shipped. Of course most of this gold has returned to London and the Bank of England is now well supplied with the yellow metal.

Very few out in New Zealand pay much attention to the Bank Rate, perhaps because few have a- knowledge of its import. The Bank of England will to-day discount a bill at 6 per cent, that being the minimum. The rate in Lombard Street, or the mar--e’t'ratte Was on'May. Ist. just a shade ovW 2'pef cent. 1 so, that the markpt to uo 1 'business must keep its , rate below the''ba ; iik. minimum'/ Money thus becomes 5 cheaper to. traders. The .. Bank, Ralei' filso regulates the'rate .paid on depbsitk by the clearing bank in London,"'whose custom it is to allow , on, deposits' 2 rief •' cent, .less than Bank, rate' which would hyw be 1, per cent. These banks' also regulate their lending rate to Some extent,'by Bank rafe. Theif 'minimum overdraft rate is , 5 perbent', or 1 per cent.' more than Bank Rate, whichever is the greater. Thus when the Bank rate was at 5 per cent, accommodation at. the. clearing 'bauks was at 7 per cent. Money is now very cheap in London and on ttie Continent and cheap money is an essential" iff industry if there is to'be' any " progress in' this direction. But cheap money -will be needed for a very loflg ttime f before there is" a revival in trade.* ■ Those who will' receive the most benefit from the lowering of the Bank Rate- will'*hei the Miorfowing governments/A NeW'Zealand 1 has got off the mark promptly and the £5,500,000 loan hate i-bedim issued ■ on fa vourable terms and conditions.' 'The loan which ear-. iritei-hsT with a-' currency of ID years, is issued at £99. per cent., and at this price the yield is approximately £5 2s per cent, which is better than borrowing locally at 5-j per cent. There is further advantage that will arise over exchange. To avoid paying the high rate for money in London the Minister for Finance issued Treasury Bills and these- now can be paid off out of the proceeds of the loan and that balance will be brought out at no cost to* the Government, indeed there should be a small premium. It doies nbt;,follow--that-be-cause mc43*§y it is going- .to-be tebeap in Ni Z. and Australia immediately. When the Government has to pay over £5 per cent, for money in London it is not to be -•'bxffbcted that ;the banks, caw lend tlieir Funds at any lower rate than they are charging at,- present. The N. Z. Loan will relieve the exchange problem' for.:the 'N. Z. hanks to a certain extent and' if the Commonwealth Government can also raise a loan for sav 10 millions the exchange situation'would teud to cease. Cheap money -.in N.Z. or Australia is not to he thought of at present hut at the same time there is no prespect of money becoming dearer.