TRADING BANK RATIOS

Press, Volume XCI, Issue 27593, 25 February 1955, Page 10

TRADING BANK RATIOS

TEMPORARY CHANGE TO BE MADE MOVE TO ASSIST TAX PAYMENTS (Ntw Zealand Preu z ssodaHon) WELLINGTON, February 24. The Reserve Bank announced today that, for about two months only, a technical adjustment would be made In the reserve ratios of the trading banks, which would be lowered to enable the banks to cope with the heavy drain of income tax payments. From February 28 the ratios would be 15 per cent, of demand liabilities and 7} per cent of time liabilities, compared with 25 per cent, and 12} per cent, at present. The percentages would be raised again on or about May 1 to a level that would be decided in the light of circumstances at the time but would ensure a continuation of the present tightness of credit. At this time of the year, the bank said, the payment of income tax placed a heavy but temporary strain on the cash resources of the trading banks, reducing their balances at the Reserve Bank by about £30,000,000 and perhaps more during the first three weeks of March. Already the margin of free cash held by the trading banks was being kept very small by the operation of high reserve ratios, and this policy was being continued so that inflation might be restrained. The temporary lowering of the ratios was therefore purely a technical adjustment, and did not in any way indicate a change in policy.