THE MONEY MARKET.

Auckland Star, Volume LXII, Issue 166, 16 July 1931, Page 4

THE MONEY MARKET.

INTEREST RATES.

AUSTRALIAN BANKS' POLICY

Fixed deposit rates are usually regarded as forming the base of the money market. Upon them the amount of the overdraft rate depends, and this rate in turn is taken as a guide for lending rates gen--erally, states the Melbourne "Argus." A good effect has been produced by the action of the Commonwealth Bank and the trading banks of Australia in voluntarily reducing fixed deposit rates, to be followed by reductions of overdraft rates. Naturally the lower overdraft rates will be the aspect that will appeal to bank customers, but it is recognised that the banks' lending rates could not be brought down before the banks' borrowing rates were reduced. For the bulk of the lixed deposit money the banks have been paying about 5 per cent, and this has been lent out at a margin of 2 to 'IVz per cent in most cases. To have brought the overdraft rate down to 0 per cent and to have retained the old rates for fixed deposits would have made it impossible for the banks to carry on. It is contended by the trading banks that the position would have been almost as bad if'the overdraft rate had been brought down simultaneously with the reduction of the fixed deposit rates because for many months the banks will be paying the old rates on current fixed deposits. It is estimated that the position will be completely adjusted within twelve months, when the • present fixed deposit terms will have expired and the new deposit rates will have become genc-ially effective. The lower overdraft rate will also be generally in application then, but' in the interregnum the banks will have to face some losses. Not only will the max gin of profit between the borrowing and lending rate be smaller for a time, but the banks remain unrelieved from taxation while their salaries bill has been increased bv Arbitration Court awards. i»nt for these factors, it is said, the lending lates could be more readily reduced. In giving effect to the new arrangement those of the banks which have large numbers of primary producers among their customers intend to give them preference in the granting of lower overdraft rates They consider that in following, this course they will be encouraging the export of produce and improving the ex- ' change position. Generally speaking, ' however, all the banks will give immediate 1 relief in what are regarded as necessitous eases The Commonwealth Bank is not ! fettered with the same obligations as the I trading banks, and it has already an- ' nounced its intention of reducing its over- ' draft rate by 1 per cent.

THE CANADIAN DOLLAR. (Received 10 a.m.) MONTREAL, July 15. The Canadian dollar is quoted to-day at to the pound sterling.