U.S. interest rates rising again

Press, 3 February 1982, Page 19

U.S. interest rates rising again

NZPA New York The United States dollar climbed sharply yesterday on the heels of higher U.S. interest rates. The higher rates sent gold prices tumbling as much as SUS4.SO an ounce in late New York trading. Pushing the dollar higher “were higher interest rates led by the less-than-expected decline in the (U.S.) money supply,” reported last Friday, said Mr John Witmer, the second vice-president of foreign exchange for Continental Bank in Chicago. Although the basic measure of the money supply, Ml, fell S6OOM in the latest reporting week, it was far short of the decline credit analysts had hoped for as a signal that the recent steep growth of money had abated. The modest. decline

sparked fears that the Federal Reserve Board would tighten its grip on bank reserves to slow money growth in its battle to fight inflation, pushing interest rates higher. Two major U.S. banks. Citibank and Crocker National Bank, of San Francisco, raised their prime lending rates to 16.5 per cent from 15.75 per cent. Stock prices on Wall Street were already in decline, but dropped further when New York's Citibank announced it was raising its prime lending rate. The Dow Jones index fell 19.41 points to close at 851.69, the largest drop since August 24 when it lost 20.46 points. The prime, which reached a record 21.5 per cent in December, 1980, was last at 16.5 per cent in November. It

had stood at 15.75 per cent for two months. An increase was expected this week because banks were paying more to acquire funds. The prime is considered an indicator of interest rate trends generally, although charges on other loans, such as personal advances and home mortgages, are not linked to it. Bullion dealers said the strength of the dollar undermined the investment in precious metals, as did higher interest rates which make financing metals purchaases more expensive. Gold for current delivery fell $3.10 a troy ounce to $381.50 on the commodity exchange in New York. In'later trading, the Republic National Bank quoted gold at $3BO bid, down $4.50 an ounce from Friday.