Reserve Bank Credit Squeeze Tightened

Press, Volume CIV, Issue 30760, 26 May 1965, Page 14

Reserve Bank Credit Squeeze Tightened

Netr Zealand Press Association)

WELLINGTON, May 25.

A tighter bank credit policy, aimed at securing a 5 per cent cut in total trading bank credit limits and a reduction in actual bank advances, has been announced by the Governor of the Reserve Bank.

A statement from the Reserve Bank today said: “Since early this year, the demand for trading hank overdrafts has been exceptionally strong.

use of bank credit were necessary to keep inflationary tendencies in check.

“Without these additional measures, the current demand for bank overdrafts could prevent actual advances from declining at the rate necessary for the banks to achieve the reductions requested by the Reserve ißank,” said the statement.

In April, because of unusualty heavy over- . draft needs by meat , companies and the seaI sonal expansion of adl vances for income-tax j payments, bank overdrafts reached a high i level. “While these additional advances are likely to be reduced or repaid during the next few months, the demand for bank credit, relative to that required for steady growth in the economy, still remains too great,” the statement said. “The trading banks have therefore been requested: “(a) To reduce substantially the rate at which! new and increased limits j are granted, in order to'

achieve a 5 per cent reduction in total credit limits by the end of the year. “(b) To insist on the achievement of reductions set ' when advance limits 1 have been granted. “(c) To restrict advances to I pay for imports. Any new or increased limits I for this purpose should only be granted in the i most exceptional cir- | ciunstances. 1 “(d) To give the highest priority. within the overall limits set, to advances needed to finance the production, processing and shipment of goods for export.” j The Reserve Bank statement said that under present conditions, restrictions on the

BANKS AGREE

‘Some Curb Needed’

(N.Z. Press Association)

WELLINGTON. Mav 25.

The trading banks accepted the necessity for some curb on business expansion in the months ahead in the interests of maintaining economic stability and sound g r o w t h. said the chairman of the Bankers' Association (Mr J. G. Souness) today.

He was commenting on the Reserve Bank’s request that advances and overdraft limits be reduced. Mr Souness said it would require restraint on the part of the Government as well as the private sector, and the Budget would enable the Government to show its determination to keep the economy on an even keel.

Without supporting fiscal policy, no purely monetary measures of restraint could succeed, he said.

For monetary measures to be effective they must be comprehensive. Non-bank financial institutions were today responsible for a much greater volume of lending than the banks so that a credit squeeze could no longer be effective if it was directed solely at bank customers.

The banks recognised that they had a contribution to make within the limits set, by confining new lending to essential projects, especially those directed towards greater export, Mr Souness said. The Reserve Bank’s instruction that overdraft limits be reduced by 5 per cent by the end of the year would necessitate a review of existing limits as a reduction of this magnitude in a short time could not be achieved solely by adopting a more stringent attitude towards new loan applications.