HIGHER INTEREST RATE

Press, Volume LXXXVII, Issue 26512, 29 August 1951, Page 10

HIGHER INTEREST RATE

NEXT AUSTRALIAN LOAN

ANTI-INFLATIONARY POSSIBILITIES

An increased Interest rate of 3} per cent, for the new Australian Commonwealth loan to be announced this week has been confirmed by a meeting of the Loan Council, according to a Canberra message. If the loan is successful, states the message, the new rate will become the second rate for Commonwealth loans on behalf of the States in the current financial year. It is understood that the amount of the issue will be £40,000,000. The last Commonwealth loan was for the same amount. Subscribers had the option of buying three-year securities Issued at par and bearing interest at 2 per cent, or 11 to 14-year securities, issued at £99 per cent., bearing interest at 3J per cent “The higher rate, which represents a dramatic increase of 10s 9d percent, on the last Security Loan, can hardly fail to have a bearish effect on all stock exchange securities,” says the commercial editor of the “Sydney Morning Herald.” Financial and investment circles may naturally feel surprised and critical of such a headlong retreat by the Government from the fields of cheap money. Without doubt it would not yet be necessary, on purely financial grounds, at least, to offer 3i per cent, had the Treasury been less stubborn in resisting the hardening trend over the last nine months and so souring its market. “But whether it is desirable to offer such a rate as an anti-inflationary measure is, of course, a different matter. If the new bpnd rate proves to be part of a concerted plan, taking in bank overdraft rates as well, it should have very valuable effects in that direction.”

The bond market has appeared to be slimming itself down in readiness for the new rate, says the commercial editor. “In view of the redemption yields of up to £3 17s lid which are offering, there are no logical grounds—as distinct from psychological ones—why the impact should be too severe," he continues. “But ripples will spread beyond the confines of the gilt-edged market. Debenture and preference shares are clearly in the line of fire, while equity share yields will have once again to stand up against a really competitive bond rate, as used to be the case before the war.”