Slowdown in money supply welcomed

Press, 30 August 1980, Page 12

Slowdown in money supply welcomed

PA Wellington The Governor of the Reserve Bank (Mr R. W. R. White), is pleased about the slowdown in the expansion of the money supply compared with 1979. Mr White said that the money supply rose 9.9 per cent in the year to June, 1980, considerably’ below the inflation rate, and lower than the growth rates of 1978-79. He defined the money supply as notes and coin held by the public, cheque-account balances at savings banks, and demand deposits at trading banks (net of Government deposits and . demand deposits, and the demand deposits of the selected financial institutions at trading banks). However, the money supply and selected liquid assets of the public, together, with all other demand, time,., and other deposits with the selected financial institutions, rose 17.1 per cent over the latest financial year. This compared with an annual growth rate of 19.4 per cent for the year to June, 1979, end 22.5 per cent- for the year to March, 1979.

The rate of increase for the second group was higher because interest-

bearing deposits rose more rapidly than demand deposits in the various financial institutions included in the liquid asset statistics, Mr White said.

The most significant factor contributing to these trends was a reduc* ed rate of increase in pri-vate-sector credit.

A year ago this was rising at an annual rate of 29 per cent, but it was estimated that this had slowed to an annual growth rate of 16.7 per cent by June, 1980. Mr White noted that the lower growth was caused, in the main, by a slowdown in trading-bank lending, which in turn reflected the firm monetary’ policy which prevailed during 1979 and the slacker demand in the private sector since that time. Since the slower rates of increase of the monetary aggregates were about in line with the Government’s aims, the stance of monetary policy over recent months had been relatively neutral. Notwithstanding the slowdown in the growth of the money supply over the year, there was some pickup in the rates of increase over the June, 1980, quarter, compared with the immediately pre-

ceding quarter. This was because the Government’s deficit, before borrowing, during the quarter was unusually, big, partly as a consequence of the earlier payment of the salary and wage adjustment for State employees, which altered the normal seasonal pattern for Government expenditure. The June, 1980, quarter also differed from the previous June quarter in that there were smaller sales of Government securities to the non-bank private sector.