Devaluation by 9 per cent LIQUIDITY WILL EASE LITTLE, SAYS BANKER

Press, Volume CXIV, Issue 33649, 26 September 1974, Page 1

Devaluation by 9 per cent LIQUIDITY WILL EASE LITTLE, SAYS BANKER

(Neu? Zealand Press Association) WELLINGTON, September 25. Tight liquidity, one of the major problems facing the domestic economy, is not likely to ease much because of the 9 per cent devaluation of the New Zealand dollar.

The devaluation was announced today by the Minister of Finance (Mr Tizard) after Australia had devalued its currency 12 per cent.

Commenting on the New Zealand move, the Governor of the Reserve Bank (Mr A. R. Low) said the extra returns from exports would tend to help liquidity, but the increase in import costs would take more money out of the economy. On balance, the effect of devaluation and spread the inflationary would be to improve liquidity, Mr Low said, effect over a longer time.

The outflow of money from the country because of speculation about devaluation would now cease. Anybody holding money overseas waiting for devaluation would now be likely to bring it back to this country. Mr Low said that overseas reserves would increase 9 per cent, the same percentage as the rate of devaluation.

The impact of higher costs from imports would be lessened by the number of importers who had bought forward foreign currency at past rates of exchange, he said. Up to 10 per cent of this year’s import bill would be covered in this way. This would help to delay the full impact of higher import costs for some months,

s sl2om to farmers Mr Tizard said the devaluation could add about sl2om : to New Zealand’s gross re- . ceipts for agricultural ex- ; ports, but some of this could > be offset by higher freight charges. • Gross receipts from agri- ■ cultural exports last year , were about sl3Bom, he said.

New Zealanders going overseas will now find their travel more expensive. They will get less in travellers’ cheques for their New Zealand dollars.

Visitors entering the country will get more money for their foreign currency, except Australians, who will get less.

Before devaluation, a New Zealand traveller going overseas would have had to pay $162.74 for £lOO sterling, but now he will have to pay $177.76. This amounts to a 9.2 per cent increase. For SUSIOO the New Zealand traveller will have to pay $77.22, compared with $70.23 previously, a rise of 9.9 per cent.

Air New Zealand estimates that the devaluation will cost it, in the long term, about $7 million. A spokesman said the airline would need about ssm more for capital costs, a large part of which included loan finance, and other increased costs would be about s2m. It was not yet known how air fares would be affected. The devaluation was the “best possible deal in the circumstances,” Mr Tizard said in Parliament this afternoon, replying to criticism from the Leader of the Opposition (Mr Muldoon) that it had been “too little/ and too late.”

Mr Muldoon, who forced a snap debate on the devaluation, said New Zealand had been dragged into its decision, and given Australia an advantage. However, Mr Tizard said the devaluation would provide relief for farmers, would avoid immediate price rises and would give the New Zealand economy some stability. Mr Tizard emphasised that New Zealand would not have

devalued if it had not been forced into it. “We wouldn’t have devalued if the decision was ours,” he said. “We got the best possible deal in the circumstances.”