Professor discusses interest rates

Press, Volume CX, Issue 32461, 23 November 1970, Page 20

Professor discusses interest rates

(New Zealand Preet AstociaUon)

WELLINGTON, November 22. The aversion to increases in interest rates in New Zealand was probably partly political, the professor of money and economics at Victoria University of Wellington (Professor F. W. Holmes) said in an address to the Wellington branch of the Economic Society of Australia and New Zealand.

He said it was partly because of a feeling that important social objectives, especially in the housing field, might be set back by such actions. However, it. would be perfectly feasible to pursue these objectives by special assistance. It would seem that the Government had some desire to move in the direction which Australian policy had taken. But it was reluctant to permit or encourage the movement of interest rates which were an inherent part of the Australian policy, especially if the movements must be upwards. “Some changes in the recent mini-Budget were designed to make the Treasury bills more attractive,” Professor Holmes said. “However, as far as many Government securities are concerned the Government has again taken the view that there is no merit in making significant changes in interest rates as part of its antiinflationary policy. “The long rate on Government stock is remaining unchanged, the medium term rate has been raised from 5.15 to 5.2 per cent, and the short rate lifted from 4.65 to 4.9 per cent.” Professor Holmes said the system of bank control had been altered appreciably in New Zealand, and it was likely to be changed further in the future. In general, the statutory requirements now remained fixed, and advances were classified into two tiers. The top tier—mainly export advances—was practically free of control and the bottom tier was subject to restrictions. This system of control of bank lending raised many issues. They included whether the two-tier system permitted the authorities to exercise

satisfactory control over the total level of advances, whether the extent to which the system discriminated in favour of-the top-tier borrower was justified, and whether different treatment for different banks was satisfactory.