Dearer Money

Press, Volume LXXIII, Issue 22005, 1 February 1937, Page 8

Dearer Money

In his review of the year at the annual meeting of the Christchurch Stock Exchange, the chairman, Mr Henry Kitson, mentioned the rapidly increasing stocks of gold throughout the world as an influence which should keep interest rates low despite increased activity in trade through returning prosperity. For many countries that may be true enough, but the monetary systems of New Zealand and Australia, which in essentials are closely similar, are not directly influenced by gold. Both systems are based on the London balances held by the banks, and broadly, the amount of credit available in each country is determined by the quantity of money in those balances. The size of the London balances, of course, depends almost entirely on the level of primary produce prices, and the extent to which accumulations of this income are offset by imports. During the depression, New Zealand's London balances remained in a fairly healthy state, because," despite a shrinking income from primary produce sales, the country imported only with the greatest caution. Interest rates fell and remained low because there was little demand for money. The recovery began in Australia some time before it did here, and immediately the outlook began to improve Australians began importing, and the shortage of London funds stimulated the authorities to try, first by raising bank rates, and more recently by tariff adjustments, to curtail expenditure overseas. With the policy of credit expansion of the present New Zealand Government, imports have risen, and the trade balance in recent months has not been as healthy as it might have been. The Government is committed to a continuation of low interest rates with mild inflation internally. The two can march together while prices for the commodities the country has to sell overseas remain high, but if a general fall comes, the situation will be interesting. Interest rates in New Zealand are largely influenced by those in Australia, and must continue to be. If Australian rates, which are already higher, than those in New Zealand, rise further, there will be a temptation to money to seek investment in the Commonwealth. Apart from all

questions of Government influence, interest rates are likely to remain low in New Zealand for a further reason that Mr Kitson mentioned —the accumulation of money which could find no profitable investment in the depression. Much of this accumulation has been absorbed as x-ising prosperity has offered more employment for money, but much yet remains to be placed. ___________________