BANK RATE AND EXCHANGE.

Auckland Star, Volume LXI, Issue 27, 1 February 1930, Page 8

BANK RATE AND EXCHANGE.

External causes have probably had more to do with the rise in the Bank rate recorded to-day than the domestic position of the Dominion. Our financial relations with Australia are sufficiently intimate for New Zealand to feel the effects of depression there, and during the last six months stringency in the markets of the Commonwealth has become increasingly acute. Dominion investments on the other hand have maintained a high level, and the result has been a steady drain of capital for the purchase of securities overseas. This has helped to deplete the bank reserves, and the position has been aggravated by the drop in wool values, even though the volume in wool and dairy produce has increased sufficiently to make good the loss through the lower rates. Repercussion of the effect of the slump in America has not yet become apparent, but financial experience shows that sooner or later it will be manifest, and that may also have been an operative factor. Our State finances are in a fairly satisfactory position, according to Sir Joseph Ward's analysis of the first nine .months' operations of the financial year,., and. the export balances of recent - 'years have maintained the Dominion's credit abroad on a basis which compares very favourably with the.best classes of gilt-edged securities. It is' very unfortunate that the Banks have found it necessary to increase the rate to-investor and to borrower., There itverc signs pointing-to a revival of production.and industrial activity, but a hardening of the money'market-is bound• to-have an adverse effect on this tendency, not only "because those who have been able to develop their activities to some .extent on the old; rate will find it harder, to.do so. with an extra half per cent to meet, but also because others. yvith capital- to invest will be less inclined to take the ordinary business, channels. The bank rate in England was dropped in December, and it is earnestly to be hoped that conditions will warrant an early return to an easier rate in this Dominion,