Aust. interest rates deregulation urged

Press, 4 March 1982, Page 21

Aust. interest rates deregulation urged

PA Sydney If Australian capital markets follow the American pattern as they have done in the past, and the Government does nothing about deregulation of interest rates, deposits with the re-

cently-introduced Cash Management Trusts could top SBOOOM within two years, the treasurer of Citicorp Australia (Mr John Thom) told the New South Wales Chapter of the Company Directors’ Association of Australia. Mr Thom said that Cash Management Trust Accounts in the United States now held deposits of SIBO.OOOM. Translated to the Australian scene, this pattern meant that SBOUOM would flow into the trusts in Australia within two years. "This money would be recycled into the system by the cash managers buying private securities, substantially those issued by banks,” Mr Thom said. It followed that there would be a multibillion dollar reduction in funds available for home building in Australia unless one of four things occurred. The alternatives were: Interest rates are deregulated, and mortgages become other than a loss proposition for banks. Interest rates fall back to a level where the regulated home loan rates fall into line with the market rate, which currently seems unlikely.

The Government imposes new regulations on banks, insisting on a fixed volume of money going into home building at the regulated rates. This would be requiring the banks to lose on every loan. The home building industry is starved of funds by the Government doing nothing. “Is doing nothing a viable alternative?" Mr Thom said. “The existing system has worked for years until recently because the household depositor was the loser. There must always be a. loser if there is a concession beneficiary. The traditional loser has refused to continue • to submit, and we must now find a new loser,” he said It could be banks, by losing on home loans, 'home buyers by losing interest rate concessions or being starved of credit, the Government by having to make economies in its own ranks, taxpayers having to pay more tax to fund larger Government deficits, or the community by having to withstand higher Government borrowings from the capital markets, pushing up interest rates and inflation.