Reserves fell $101M in week to Sept. 14

Press, 21 September 1977, Page 28

Reserves fell $101M in week to Sept. 14

NZPA Sydney The run-down of Australia’s overseas reserves continued unabated last week, when holdings of gold and foreign exchange fell SUSIOIM to $2317251 in the seven days to September 14. As on the previous Monday, when the Reserve Bank disclosed a 5108.2 M fall in its gold and foreign exchange assets for the week to September 7, the Australian dollar was revalued 0.1 per cent. The fall in foreign exchange holdings, which has now persisted unbroken for 17 weeks, should be reversed or at least checked in the current week by the crediting to reserves of the Federal Government’s SUS2SOM Eurodollar borrowing. Any continuing improvement in reserves, however, will need to come from a significant reduction in the current-account deficit, and from a reversal of the present outflow of privatesector capital. Although some tardiness in the growth of export receipts, and the deadlock on the Japanese long-term sugar contract are affecting the trade balance, a large factor behind the S2OBM fall in gold and foreign exchange in the first half of September has been an obvious acceleration of the August private capital outflow of SI23M.

The succession of changes in the trade-weighted index of value of the Australian

dollar has been a warning to speculators that the ex-change-rate is being closely managed, and that there will be no steep devaluation, but the severity of this month’s rundown in reserves suggests that not everyone has been convinced. Yesterday’s movement from 91.4 to 91.5 in the trade-weighted index (May, 1970, equals 100) was the eighth' since the beginning of August. It restores the index to its August 30 level, and means that the devaluation is now effectively 13.1 per cent compared with 17.5 per cent in November.

The Reserve Bank’s weekly return also suggested that main trading bank statistics for August will show that the steep decline in trading bank deposits since the end of March was halted last month.

The statutory reserve deposit accounts of the trading banks with the Reserve reduced by $247,551 to $1116.2M in the week to September 14. However, the September 9 reduction in the S.R.D. ratio from 8 to 6.5 per cent would have accounted for a decline of about $252M in the account, with roughly $16851 added to the banks’ free liquidity and another $84.51 added to the term-and-farm-development loan funds. Since the S.R.D. account was reduced by Jess than this amount, the inference is that August trading bank deposits were marginally better than their July level of $16,836M.