NOT FAVOURED

Auckland Star, Volume LXXIII, Issue 195, 19 August 1942, Page 6

NOT FAVOURED

HIGHER INTEREST

WAR LOANS IN THE FUTURE

Adverse views on the proposal ot Hon. W. Downie Stewart, a formei Minister of Finance, that the next war loan should carry a higher rate of interest, at 3i per cent, were general when leading business and financial interests in the city were sounded this morning Most of those approached agreed that as as the Government could get mone> at the present rate it should continue to try, and pointed out that a higher return on war loans wouici have serious repercussions on tne gilt-edged market which might outweigh any advantages. "It is true that those who have money are making tne greatest monetarj" sacrifice to-day and existing rates of interest represent a penalty on thrift," remarked the manager of a large financial institution. "But from the taxpayer's point of view the lower the interest rate the better for the country in time of war. In nearly every country in the world cheap money is the aim m efforts to avoid the worst effects of inflation. As long as the Government can get money at 3 per cent and less it should maintain the rate. Mixed Reception Stock Exchange circles gave Mr. Stewart's proposal a mixed reception. While some brokers agreed that 31 per cent would offer a greater inducement to the smaller investor, others considered that subscribers should be thankful to get 3 per cent at times like the present. One sharebroker criticised Mr. Stewart's statement as "political spleen," adding that his statement was most illtimed. It was generally agreed that any revision of interest rates on Government stock would tend to upset the market.

"After all, the present 3 per cent Liberty Loan is only a shade under par and certainly does not justify another I per cent," was the observation of the general manager of a company which invests extensively in Government securities. "The Government has got to go on the market for money at the price they can get it at. If the next loan flags the Government may have to raise the interest rates, or on the other hand they may revert to the compulsory contribution principle."

Effects on the Market

He added that the bulk of the war loans was subscribed by the larger investors. If' Mr. Stewart's scheme were adopted all holders of 3 per cent stock would find that although they could get 3J per cent on new subscriptions their 3 per cent holdings would drop in value from nearly par to £98. The market would be generally upset. He thought that the small investors could be specifically catered for by bonds limited to say £500, which could bear a slightly higher interest rate. However. such a scheme would probably seriously affect the operations of the savings banks.