MONEY MARKET.

Auckland Star, Volume LV, Issue 175, 25 July 1924, Page 6

MONEY MARKET.

■■■'■»-■ ■ ■- BANK OF ENGLAND RATE. OPPOSITION TO INCREASE. Relative to the reported intention to increase the Bank of England rate, the Federation of British Industries has sent a letter to the governor of the Bank of England, drawing attention to the adverse effects upon enterprise of an increase in rates, as enumerated in the report of the Currency Committee, 1919. . The letter added that similar effects at present would be most serious for British industry. The question of an alteration in the Bank of England rate is not without much significance for New Zealand borrowers, and the New Zealand money market generally. Any advance in the official rate would meau that loan commitments falling due for redemption or conversion in London would uot be met on such favourable terms as would otherwise be possible, while the relative dearnoss of borrowing abroad would almost certainly be reflected in the rates of interest that would be offered for loans locally. Indirectly, additional pressure, which would, in all probability, be thrown upon the New Zealand credit supply, would tend to raise discount and overdraft rates, and generally to exercise a restrictive influence on production and business. i Effect and Advance. | The committee on currency and foreign exchanges, of which Lord Cunliffe (governor of the Bank of England) was chairman, was appointed in 1918 to consider and report upon post-war oirrcncy and foreign exchange problems and the sfeps necessary to bring about normal conditions. The report included an explanation 'of the pre-war automatic, operation of the Bank of England rate of discount in maintaining the bank's ratio of cash reserves to liabilities, and went on to point out that " the raising of the bank's discount 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. New enterprises were, therefore postponed, and the demand for constructional materials and other capital goods was lessened. The couse- , quent slackening of employment also diminished the demand for consumable goods, while holders of stocks of commodities carried on largely with borrowed money, being confronted with an increase of interest charges, if not with actual difficulty in renewing loans, and i with the prospect of falling prices, tended to press their goods on a weak market. Tho result was a decline in general prices in the home market, which, by checking imports and stimulating exports, corrected flic adverse trade balance, which was the primary ; cause of the difficulty." j Though British currency to-day is inconvertible, and the automatic check of movement in the bank rate, upon inwards and outwards flow of gold no longer operates, the effect upon the money market of a raising or lowering of the rate would be substantially the same as before the war. Lower Rate Urged. Reports of London financial opinion by the last English mail indicated that there was a strong feeling in many quarters that the bank rate should be lowered. The point was stressed that the Federal Reserve Bank of New York had reduced its rate from 44 per cent, to 4 per cent., thus pkming the official New York rate on a level with that of London. It was believed that there j were evidences that the ease in business in America was in course of being reproduced in England. i A reduction in the rate, it was urged, would be of great benefit to British industry and trade, and borrowers in general would be able to obtain accommodation on cheaper terms. Market quotations for iixed interest securities would tend to rise, with a concurrent reduction in yields. It was also emphasised that a reduction which placed the English rate lower than the j American would tend to make the Lon- * don capital market more attractive for I foreign borrowers than that of New I York.