Govt restrains interest rates

Press, 26 November 1981, Page 1

Govt restrains interest rates

PA Invercargill The Government has introduced regulations to prevent interest rates from rising. The regulations drawn up by the Government earlier this month were passed by Order-in-Council yesterday and come into affect immediately. Announcing the move yesterday, the Prime Minister (Mr Muldoon) said that the regulations had been made necessary because financial institutions had disregarded warnings to hold their interest rates.

“It is clear that some finance houses have adopted a practice which is not acceptable to me of paying higher rates to existing' depositors," said Mr Muldoon. He said that the Government had given the financial sector “fair warning," and had been left with no choice but to act.

The regulations mean that all banks and finance houses must notify the Reserve Bank 14 days before they can alter their interest rates.

The 14 days gives the Government time to take further action if required but does not automatically stop interest rates from rising.

Mr Muldoon declined to specify just what further action the Government might take during the two-week period, saying he did not want “to utter threats.” The chairman of the Finance Houses' Association, Mr Terrance Fitzgerald, said he was "disappointed and concerned” that the move could imply a return to pre--1975 interest controls.

The 14-day notification would not in itself significantly affect finance companies. he said. But it remained unclear how the Government would react to any increase notified under the amendment to the regulations signed yesterday. ■ Mr Fitzgerald would not comment on the recent Broadlands offer of 17.25 per cent to existing depositors, which was cited by Mr Muldoon in announcing his move. Rival companies yesterday were interested most in whether the amendment, yet to be gazetted, could catch the Broadlands offer.

A Reserve Bank spokesman believed it could not.

The general manager of Broadlands Finance, Mr T. J. F. Haydon, declined to com-

ment on the Government move or the fate of Broadlands' new maximum rate.

Mr Fitzgerald agreed that it was the practice of most finance houses to make special arrangements for investors whose deposits were approaching maturity. A spokesman for one Auckland company said it was common to give reinvestors “a friendly touch” over the maximum public rate of 15.25 per cent.

But the margin was usually 0.25 to 0.5 per cent. He said the Broadlands offer was unusually high and it would be “unfair” if it escaped the new measure. Mr Fitzgerald said that yesterday’s move could be the precursor of the kind of controls which brought problems in the wider economy.

Artificially dampened interest rates created a falsely high demand for money which distorted the economy generally, he said.

He said that the Rerserve Bank, in responding to notifications under the amendment. would have to recognise that a range of interest rates should continue to be available.