Bank sees tighter money ahead

Press, 14 January 1982, Page 14

Bank sees tighter money ahead

PA Wellington A tighter official monetary policy will constrain trading banks’ lending ability this year, the chairman of ANZ Banking Group (NZ), Ltd, (Mr L. M. Papps) told the annual meeting in a wideranging address covering banking operations and the economy. He told about 200 shareholders that the deteriorating Balance of Payments, together with the Government’s moves late last year to tighten monetary policy, had reduced bank liquidity. “Clearly the Government’s economic policies will be tigher, in terms of their impact on the private sector, in the current year than in the (company’s) year to September, 1981.

“Growth in real personal disposable incomes, which strengthened in 1981, may therefore tend to slow during 1982.

“Also, there appears to be some easing in the growth rates of farm production; thus, although the higher level of domestic sales and output evident in 1981 may flow through into 1982, some

easing in activity is likely as the year progresses. Mr Papps said that he expected continued high demand for finance because of farm and non-farm sector liquidity pressures. Cost increases would also continue, and there would be a downward pressure on interest margins.

Considerable progress could be made in solving economic problems but a stable environment was vital for progress on the major energy and industrial projects.

Mr Papps said that he was concerned at the reintroduction of official restraints on interest rates which could restrict competition when encouragement to save was needed. Savers needed an adequate return, and artificial controls tended to create distortions.

“A competitive and growing banking system leads not only to a more efficient banking service, but also means that an increasing proportion of the community’s borrowings can be met by the banks.” The controls in force in the 1970 s had

inhibited the banks' ability to compete with other financial institutions.

To a significant extent, the increasing use of credit cards and personal instalment loans was subsituting other forms of retail credit.

Mr Papps pledged continued support to the farming industries, to help boost investment, production and exports. However he was disturbed at the failure to reduce inflation, he said.

“This remains our major economic problem. Low commodity prices on world markets and falling inflation rates overseas at present suggests that a reduction in inflation can be achieved in 1982 if domestic costs can be held.”

However, there were few signs of community co-opea-tion to increase productivity and reduce price growth. The progressive tax scale meant employees sought big pre-tax wage rises to preserve spending power and so it was important that efforts continue to agree on some wagetax trade off.