Criticism of savings bonds

Press, 27 November 1982, Page 20

Criticism of savings bonds

PA Auckland A call for the Government to stop issuing inflation-ad-justed savings bonds was made by the chairman of the Auckland Stock Exchange. Mr H. J. Nisbet. Speaking at the annual meeting of the exchange. Mr Nisbet said that he believed the time had long passed when the issue of the bonds should cease. “The concept of tomorrow's taxpayer signing an open-ended cheque to facilitate today's investor holding a riskless investment is unrealistic.” he said. “No investment is free of risk, whether it be because of the hazards of an enterprise or because of the threat of inflation to the value of savings and, particularly while inflation exists at all. each of us as part of the New Zealand community must bear some responsibility and. with it. some risk arising from a situation of our own creation." Mr Nisbet said that the developing contingent liability to repay the bonds is substantial, and he believed the issue of further bonds should be discontinued and a final repayment date set down for five years hence to close the loan-raising exercise. Mr Nisbet said that the year under review had been

notable for cementing the link between interest rates and share prices to the stage where he believed the relationship was the single most influential factor in determining share price levels. "Though common in overseas markets, it has only been in recent years, after the move towards open market conditions that a freeranging link has existed." Mr Nisbet said that it was disturbing, after the success of these earlier moves, to see the policy partially reversed by the Government last November and again in June. “We again have interest rate restraints imposed on the market accompanied by anomalies and distortions associated with controls. Even the 90-day market no longer remains freely competitive, which will also cause distortions." Mr Nisbet noted that the market had gradually shifted from a position where investors received negative rates of interest return to a position of receiving positive rates. He said this should become more attainable if inflation levels decline over coming months. “It is to be hoped that the natural forces of supply and demand in this sector of the market will be restored at an early date” he said.