EASIER CREDIT IN N.Z. POSSIBLE THIS YEAR

Press, Volume XCV, Issue 28217, 4 March 1957, Page 12

EASIER CREDIT IN N.Z. POSSIBLE THIS YEAR

There is as yet no indication that credit restrictions have finally served their purpose although considerable progress has been made. This view is expressed by the Bank of New South Wales in its latest quarterly “Review.” The probability of a substantial loss this year by the Dairy Products Marketing Commission in meeting its guaranteed price commitments will enforce continued restraint of trading bank lending, at least for the next few months, to offset this increase in Reserve Bank finance to the commission. But some relaxation may be possible later in the year. Determined restraint of trading bank credit during 1956 resulted in a marked fall in advances, but the accretion to oversea assets, caused mainly by Government borrowing in London and New York, and an increase in Reserve Bank credit, prevented any considerable decline in deposits. Heavy Capital Outlays The contraction in credit was achieved in the face of heavy expansionary pressures from an economy still buoyant if no longer tending towards uncontrolled boom. Fears for the future market levels of New Zealand produce overseas had no ap-

parent effect on spending in New Zealand. Business activity was kept high by heavy capital expenditure on Government and private development projects. The main objective of credit restriction, the limiting of imports to a level consistent with New Zealand's oversea exchange earnings, was achieved. Internal stability, although now seemingly much closer than a year ago, remains’ elusive, and living costs recently have shown a tendency to rise, says the “Review.” The new system by which the Reserve Bank times the reserve ratios is “necessarily arbitrary in concept and operation, in that no logical basis exists on which an appropriate level of advances can be determined,” says the article. “However, it represents an improvement on that employed formerly, under which the trading banks were forced to borrow about £l2 million regardless of the level of advances. “Frequent changes in reserve ratio requirements are inherent in the new system. The changes made in the latter half of last year were often misinterpreted by the public, reductions being regarded as an indication of a relaxation in restrictions, and such close control seems neither necessary nor desirable.”