THE MONEY MARKET.

Auckland Star, Volume LVI, Issue 53, 4 March 1925, Page 11

THE MONEY MARKET.

STATE AND LOCAL BORROWING MARKET DISORGAXISED. (By A Correspondent.) At the present time the following loans .ire being advertised :—Wellington Harljonr Board, £ 150,000 at 5J per cent; Hauraki Plains County Council. £60.870 at 6 per cent, and Xapler High School Board. £21,750 at 5 J per cent, the aggregate of these three loans being £232.620; A few weeks ago the Ashburton Power Board raised £ 100,000 at 5| per cent, at all events that was the amount asked for, and it is believed that the whole amount was subscribed. Compared with Australia, money is very cheap in New Zealand. The State Savings Bank of Victoria recently raised within the Commonwealth £2,000, 000 at 0 per cent. The loan was issued at £09 and was underwritten at a cost of 25/ per cent. The loan Iβ free of State tax, and is guaranteed by the Victorian Government During last month the Melbourne and Metropolitan Board of Works issued a local loan of £600.000 at 6j per cent for seven or twelve years, the interest being subject to both State and Federal taxation. The Commonwealth Government is issuing a loan of £5,400,000 on behalf of Victoria. South Australia, West Australia and Tasmania. These States have loans maturing this year for a much larger amount, and it is anticipated that the above amount will be required to redeem the debentures that are not likely to be renewed. This loan is being issued at £ 99, carries interest at C per cent, with a currency of five or ten years at the option of the applicant. The return is equal to not quite 6i per cent for a five years' currency, end £0 2/6 per cent for ten years' currency. The intPrest would be free of State fax but subject to Federal tax. Our local bodies expect to borrow at a cheaper rate than the Commonwealth or State Governments, and there is the debenture tax to come out of the local lssnes. It is perhaps something to our credit that money is cheaper here than in Australia, but if the demands of the local bodies are to he on the present large scale, there must follow a disturbance in our money market. It is the small investor who must be looked to for subscriptions, for the larger investor.!, such as the big insurance companies, will naturally seek investment in Australia, where rates are high. The small investor will withdraw his money from the Post Office Savings Bank or from the mortgage and deposit societies, and these, in turn, to protect their deposits must raise their rates, and if deposit rates advance lending rates must also advance. Furthermore, these demands of the local bodies will curtail the supply of money available for investment on i::or'.gage. I£ there is any difficulty in financing mort?a»!-'s there w!ti follow a slump iv. tiie real estate business.

Disorganised Money Market. On August 8. 1924, the Federal Keserve Panic of New York reduced the rediscount rnte to 3 per cent. This, together with the favourable political conditions that followed in the United States by the election of President Coolldge. and in Britain by rho retura of the Conservatives to power, hnd a very beneficial effect on Hterling exchange on New York, which ultimately enabled Australian banks to secure sold from America, and brought the question i.f iho restoration of the gold standard In the British Empire within close range. Last week the Federal Reserve Bank raised the rediscount rate to 3 J per cent, and there was an immediate reaction in London, the Bank of England raising its rate for weekly advances to 5J per cent, and this means that the bank's discount rate, which has stood at 4 per cent since July. 1923, will on Thursday this week be raised to 5 per cent, and other European banks will most likely be forced to follow the course set by the Federal Reserve Bank of New York. A general collapse of gilttiered securities on the London Stock Exchange was a feature of the adverse umvt'Weut in the money market, aDd the tightening of the money market will hasten deflation. Every market is likely to feel the effects, and the first indications should be noted in the wool market. In Germany the Bank rate has been reduced from 12 to '.» per cent. The French bank rate was raised on December 11 from 6 per cent to 7 per cent, and the Amsterdam buck rate was reduced from a per cent to 4 J per cent. Bank rates In other centres wero : Athens. 7J per cent; Belgrade C per cent; Brussels. 5J per cent; Budapest, 121 per cent ; Oslo, 7 per cent; Copenhagen. 7 per cent; Lisbon, 9 per cent • Madrid. 5 per cent : Kiga, 8 per cent; Sofia, 7 per cent; Vienna, 15 per cent " Warsaw. 12 per cent : Stockholm, 5* per cent ; and Tokyo, 8 per cent. A ceneral advance in money rates may be expected and the movement will spread to New Zealand, but perhaps not immediately.