Mr Muldoon announces new policy on loans and ratios

Press, 15 August 1978, Page 3

Mr Muldoon announces new policy on loans and ratios

PA Wellington) New trading bank reserves! ratios, and details of a new Government cash loan were announced last night bv the' Prime Minister (Mr Muldoon). “The policy changes I have! announced will be of consid-i erable significance for the course of monetary and econ-! omic policy in New Zealand.”' Mr Muldoon said. “I am sure they will be welcomed bv the financial communitv and; economic commentators gen-! erally.” He announced that the mar-1 gin aimed at in setting trad-; mg banks’ reserve ratios; would be reduced, from Sep-! fram SI2SM t 0 The Government secuntv ! ratio applied to finance com- , pany borrowings would be ; returned to 15 per cent from its present 12J per cent from ; October 1. Mr Muldoon said it was i hoped that the improved com- ' petitiyeness of Government!' securities and Treasury bills!: would encourage the public I < and the financial institutions! to hold these securities volun-ii tarily to a greater extent than! 1 in the past. I,

■ I These moves were consisItent with the general direction of monetary policy since March, 1976, he said, during ; which time substantial moves had been made to free up the • financial system and to rely • more on market-oriented measures. ! This means that the Re- ' serve Bank may make adjustjments to the prices at which i it buys and sells securities, and may vary the “spread” • between its buying and sel- ! ling prices in accordance with the over-all policy obiectives • set by the Government. I Mr Muldoon said ‘hat this I new policy would epply from ; the conclusion of the new | cash loan. The loan, which will open op August 21. will offer a one-year loan maturity, in addition to the usual two. five and 10 vear maturities. The rates will be (with the former rates in brackets); one vear, 9.25 per cent (not issued in the last loan); two years. 9.5 ner cent (9.0): five [years, 9.75 per cent (9.75); and 10 years. 10.0 per cent 1(10.0). Also, from tomorrow, threeimonthlv Treasury bills will I be offered at a vield of 8.5 per cent (formerly 7.5 per

cent) and six-monthly bills at 9 per cent (8 per cent).

The loan will close on September 8. Any stock issued to an individual holder will be able to be tendered for payment of death duties or income tax in the event of the stockholder’s death, without the need to take specially nominated death-duty stock. There will also be some changes in the basis of payment of commission to sharebrokers and banks handling loan applications. Mr Muldoon said that the economy was beginning to respond positively to the measures the Government had taken over the last year.

“Although unemployment is still high, spending is clearly recovering and the business community is more optimistic about the economy’s future outlook,” he said.

One part of the Government’s strategy had been to stimulate the growth of lending by financial institutions, and to this end various Government security ratios had been eased over the last 12 months. The Government was now concerned to ensure that, while lending bv financial in-

stitutions should be sufficient to sustain the desired economic recovery', it should not be so great as to jeopardise efforts to curb the rate of inflation and to reduce the balance-of-payments deficit. The Deputy Governor of the Reserve Bank (Mr D. L. Wilks) said yesterday that Government cash " loans would, in future, Le raised at quarterly intervals to coincide as nearly as possible with the periods during which financial institutions must meet their statutory Government security requirements. The loans would usually be open for a short period only, the terms of issue being announced just before the opening.

The advance subscription facility, which now enabled investors to make subscriptions to cash loans before the terms had been announced, would be discontinued, he said. Treasury bills would continue to be issued “on tap” from the Reserve Bank in minimum amounts of $lO,OOO, but it was proposed to give investors the choice of having the bills in registered or bearer form, said Mr Wilks. The Reserve Bank would

give recognition to a limited number of firms to act as specialised dealers in Government securities.

“These dealers will be the channel through which the Reserve Bank wiil buy and sell Government securities when operating on its own account, as distinct from its function of issuing securities for the Government in terms of a cash loan,” he said.

“The Stock Exchange will be asked to encourage the re-establishment of a small investors’ market in Government securities,” Mr Wilks said.

The price at which the Reserve Bank at present buys and sells Government securities, is based on the rates set for the most recent cash or conversion loan.

From the closing date of the cash loan, Government securities, including Treasury bills, would be bought and sold by the Reserve Bank at prices which might be varied from time to time in the light of changing market conditions, and in a manner consistent with the monetary policy objectives set by the Government, said Mr Wilks.