The Press SATURDAY, FEBRUARY 15, 1958. Tighter Credit Squeeze

Press, Volume XCVII, Issue 28512, 15 February 1958, Page 16

The Press SATURDAY, FEBRUARY 15, 1958. Tighter Credit Squeeze

The announcement of the tightening of the credit squeeze by the Minister of Finance (Mr Nordmeyer) was vague as to detail It could hardly be otherwise in the present confused trading situation, particularly as the Government apparently does not intend to use the orthodox mejhod of increasing the minimum deposits trading banks must maintain at the Reserve Bank, supported by a penal bank rate. One thing is, however, clear: the squeeze is going to be a good deal tighter than it was in 1956, when the then Minister of Finance (Mr Watts) found it hard enough to wring about £ 14 million of inflation out of the economy in 12 months. Mr Nordmeyer is aiming much higher—at £l6 million in five months. The circumstances, also, are more difficult, because Mr Watts was able to use the fiscal weapons of a tax increase and a Budget surplus (though the latter turned out to be no more than a balance). Mr Nordmeyer has to contend with a sweeping reduction iti taxation and a heavily unbalanced Budget. No doubt he will have more to say, or the Reserve Bank will speak for him through instructions to the trading banks, on the methods he is adopting; but, broadly, his approach appears to be the exertion of moral pressure on the trading banka to get advances down in whatever way they can.

The “ selective ” policy to channel bank credit into the most useful hands is not new/ though recently it seems to have been pursued mainly through variations in overdraft rates. This accords with the advice of the Monetary Commission, which pointed out the difficulty of ensuring thaf money ad-

vanced for one purpose, was not used for a different one. Mr Nordmeyer’s statement suggests an attempt to make the banks select their borrowers according to a more rigid set of rules. This is, not likely to be more successful than the present method. It would cause unnecessary difficulties for the banks. A good customer, for instance, would find it irritating and frustrating if he could not use a temporary bank loan to help him finance a house. What is needed, as the Treasury told Mr Nordmeyer,in its powerful memorandum, is a reduction in spending as a whole. Selective control might seem a useful weapon against importers. Quite apart from its ordinary limitations, it is probably a little late for. its effective use now. Many importers are little more than indent agents, who have already passed on their stocks to wholesalers and retailers. These are the classes that may be squeezed hardest, after the overseas wool buyer and the ordinary individual. If so, there may be some good bargains in the gext few months for those who still have their tax rebate to spend. But even after the banks have done their best, it is doubtful whether Mr Nordmeyer can hit his target without a damaging trade dislocation.

It may be added that not much purpose- will be served if trading bank credit is reduced and the Government itself raises as much or more credit from the Reserve Bank to help pay for its promises. The Government’s financial difficulties arising from ,an inflationary election policy are only just beginning. Monetary controls alone are not likely to overcome them. Increased taxation seems inevitable.