FINANCE, COMMERCE AND MARKETS.

Auckland Star, Volume LVI, Issue 290, 8 December 1925, Page 4

FINANCE, COMMERCE AND MARKETS.

THE BANK RATE. A GENERAL REVIEW. HOW IT IS AFFECTED. WAR-TIME FIGURES. (By PENLOO.) The minimum discount rate of the Bank ot" England for best three months' bills was on December 3 raised from 4 to 5 per cent. The advance is due to the heavy withdrawals of gold since August G, when the rate was reduced from sto 4>} per cent. The amount of metal withdrawn is stated at £19,000,000 with prospects of further heavy withdrawals. Whatever the cause of tlie advance it is quite normal, for it is usual for the rate to rise in the autumn months, generally in October or November. The higher rate will have the effect of attracting credits to London, and so check the outflow of the yellow metal. In 1913, the year before tlie war, a 5 per cent rate was imposed on October 2 and was effective for 90 days, that is for the balance of the year; and it was not until January 8, 1914, that the rate was reduced to 4.V per cent. Tlie -3 per cent rate now in force will, no doubt, be maintained until next month when a reduction will be made. That, at all events, is the expectation in banking circles in New Zealand and is in accordance with advices received from London. There have been four changes in the bank rate this year. Tho year opened with the rate at 4 per cent, which was fixed on July 5, 1923, and was maintained throughout tho whole of 1924, On March 5 last the rate was raised to 5 per cent following an advance made in' the rediscount rate by the Federal Reserve Bank of New York. On August 6, the rate was unexpectedly reduced from 5 to 4J per cent, and a further reduction to 4 per cent was made on October 1, the 5 per cent rate being reimposed on December 3. Assuming that the 5 per cent rate holdß fpr the balance of the year, as no doubt it will, then the average baflk rate for 1925 works out at £4 8/10 per cent. The 4 ■ per cent rate Was effective for 126, days, the 4J per cent rate for 56 days and the 0 per cent rate for 183 days. In 1924 ; the average rate was .£4 per cent, aB . that rate Was maintained throughout one year. The average bank rate for \ • 1925 compares With the rates Tiding in pre-war years as under:— Year. Average Bate. 1925 'ii 8 10 1013 4 15 4 1012 3 15 8 liMl 3 0 5 1010 3 14 « 1009 3 2 O It will be noted that this year's average is leßs than that of 1913. In 1914 . there were nine changes in the bank rate owing to the Outbreak of hostilities, and they varied between' 3 per cent and 10 pur cent, but the higher rates were in force for comparatively short periods. Thus the 10 per cent rate held ior six days, the 8 per cent rate for a single day and the 6 per ceht rate for two days. Notwithstanding this the average rate for 1914 was only £3 13/6 per , cent. In 1010 the average was £5 per • cent, but in the following year it ' dropped to £4 13/2. In 1920 the average rate was £6 14/1, and in 1021 it Was CO 1/8. The average for 1020 WaS the highest for any year since 1866, the year of the failure of tlio banking firm i of Ovcrend Gurney and Co., which took place on May 10 of tliat year, and .the 1 average bank rate in 1800 was £6 19/ ' per cent.' For the 25 years with the : close of this year tho average hank rate ' works out at £4 5/5 per cent, so that the average for this year of U 8/10 is only 3/5 per cent above the average for twenty-five years. From September 5, 1844, when the Bank Act came into operation, 'to December 31, 1913, there were 25,318 day 3, upon 6309 of which, the Bank of . England rate of discount was 3 per cent; . on 4113 days it was 4 per cent, on 3598 days ii was 2i per cent, on 3407 days it ■ was 2 per cent, on 2527 days it Was 5 per cent, on 2068 days 3£ per cent, on 976 days 6 per-cent, on 798 days 4$ per cent, on 036 dayß 7 per cont, on 268 days ' 3 per cent, on 263 days 5J per cent, on . 141 days 10 per cont, on 95 days 0 per cent, on 01 days GJ per cent, and on 28 days 2£ per cent. Only on oho occasion, in 1871, did %he bank directors try the i effect of 5/ per cent change, and needless to say it was downward. Up to 1913 the rate was movel to 10 per, cent on i' two occasions only, the" first being on ' Monday, November 0,-1857, when there was a commercial and; financial panic. The Bank Act was suspended three days later. The ' second ' occasion was on May 12, 1806, following #pon the failure of the hanging firm of Overend Gurney and Co. ' The Bank / Act was again suspended. On the first. occasion ' the ", 10 per cent rate wag lit "force for 45 days, and on the second occasion for 96 days. The bank rate to 10 per cent a third, time on August 1 ( 1914, and was maintained for about five days I only. The ]#vestrate charged by the bank is 2 per cent, that 'being the traditional minimum: . Oh February 22, 1894, a year memorable for the banking crisis in Australia and New Zealand, the . rate was reduced to 2 per cont and Was maintained at that rate until September 10, 1806, a period of 031 days. On May 13, 1807, the rate was again Teduced H 2 per cent and remained at that Vate for 133 days—and since then the bank rate . has never been as low as 2 per cent. Up to the passing of the Bank Act in 1844, the rates fixed by the Bank of England were purely conventional, and : did not move in accordance with the ] market rate. The rate generally re- i maincd unchanged for a great number- ' of years, thus a 5 per cent rate fixed on ' May 1, 1746, remained in force until ' • June 20, .1822, when it was reduced to I baSv- r ° en - t- The rato <l uote d % the \ wV aa lts mi nimum is that charged . h liU B^ ntin S ftrafcclaaa three months' ttw'tath „.™ a^ eb Tat( s of discount is i • * Ul WwJ' I™ Ch the Swat firms of \ *m-cla B8 n a r pr^Par ed to discount ' \? c d *y aKi; w al ! d chanßoß from da y ' matket i« general CV and, the ;money

we're »*» PSfe 1 * 7 " ' Comebacks peek's; rat. = tO . Price's record oi 3«a*& »«•« ifiJS ? T *«*-\

DALGETY'S FINE REPORT. DIVIDEND NOT RAISED. SOME BIG FLUCTUATIONS IN FIGURES. (From Our Own Correspondent.) LONDON, November 2. Although the past year was one of wide fluctuations in wool prices, Dalgety and Co., has emerged triumphantly from the difficulties of tlie times. During the period covered by the latest accounts the price of wool soared to an almost unprecedented level, only to suffer afterwards an almost sensational slump. For a time auctions were suspended ahd much financial stringency resulted. But after the close of the financial year buying was resumed and clearances were effected at remunerative prices. The demand continues, and the position is described as hopeful, with indications of a small increase in the current year's clip. The company records a further substantial improvement in profits for the year to June last, which is all the more noteworthy since the 1923-24 earnings were in turn some £70,000 in excess of those of 1922-23. The actual .net figure for the period—arrived at after making provision for depreciation, debenture, interest, and all charges—is £361,313, against £323,989 for the previous year, and £254,102 for 1922-23. The amount brought forward is also higher than a year ago, and the available pi-ofitfi, therefore, at £531,365, some £90,000 up. The directors have deemed it better to strengthen the internal resources of the company in preference to distributing a higher dividend, which is again 17 per cent, inclusive of a bonus of 7 per cent. The balance-sheet bliows some changes of considerable magnitude. Cash figures at £133,227, against £812,----470, and investments, other that! that of the £1,000,000 reserve fund, at £286,----847, against £650,802. _ Correspondingly" advances oh land, wool, etc., have increased from £3,668,168 to £5.241,620. Sundry debtors amount to £1,275,280, an increase of £540,000; creditors at £2,612,784 are £100,000 lower. The following table -compares the results of the past three years:— 1924-5. 1923-4. 1922-3. Net proflt ...... i. 561,313 £323,989 £234,162 Brought forward 170,032 116,003 101,001 Available 031,3155 410,052 350,063 Pref. dividend.. 25,000 25,000 25,000 Ord. dividend.. 170,000 170,000 100,000 Ord. per cent. .. 17 17 15 Premises acqount 75,000 50,000 00,000 Stall provident rnna 25;000 25.000 KjtOOO Carried forward 236,305 170,032 110,003 Tbe report refers to present conditions in Australia and New Zealand. The drastic reduction in the exchange haß improved trading. But while earlier in the year prospects for a very large harvest were satisfactory, recent dry weather in the Wheat-growing areas may mean a reduction in the estimated crop. A small increase on last year's wool clip is expected, but the position is more hopeful. ■