Kiwi stock new issue at 10 p.c.

Press, 25 August 1983, Page 1

Kiwi stock new issue at 10 p.c.

PA Wellington The Prime Minister, Mr Muldoon, yesterday defended an interest rate of 10 per cent for a second issue of Kiwi Savings Stock.

He said yesterday he did not think the rate between 4.5 and 5 per cent less than the first K.I.S.S. issue, would fuel inflation. The second issue will be available from September 5, and, as with the first issue, the stock will be redeemable after four weeks from the purchase date on seven working days notice. If redeemed within one year of purchase, the interest rate will be 8.5 per cent. The Opposition finance spokesman, Mr R. O. Douglas, said finance companies and banks would probably offer interest rates above 10 per cent in response to the issue.

Mr Douglas said Mr Muldoon had obviously not been able to reduce interest rates to the 8 per cent he had set as his target.

“What he has done is to set the floor rate at 10 per cent,” he said. “One can expect other institutions such as finance companies and banks to respond to this 10 per cent floor rate by offering rates above that.” Mr Muldoon said 10 per cent was the appropriate rate for the stock.

“We are working from a Government stock rate of 8 per cent and this is going to be an issue that will be on the market for a considerable time,” he said. In addition, the stock was the “retail equivalent” of Government tender stock. Institutions which needed large amounts of Government stock for their ratios would go for the tendered stock, but individuals with relatively small amounts to

invest would be attracted to the K.I.S.S. stock.

When asked if he thought the interest rate would fuel inflation, Mr Muldoon said. “No, rather the reverse because it is going to be a very good return. “The 10 per cent would relate to a much lower rate of inflation than 10 per cent. It’s giving a return above the rate of inflation."

He thought the issue would not encourage financial institutions to offer higher rates. “They will be round that kind of level,” he said. “Nobody was giving 2 or 3 per cent above Kiwi stock earlier this year.” Mr Muldoon disagreed that the interest rate had set a floor rate of 10 per cent. The market leader should be a Government stock rate of 8 per cent, he said.

The only change in conditions and terms of the new stock was a reduction in the commission rate paid to brokers, Mr Muldoon said.

“This means the issue will again be open to all New Zealand domiciled investors, other than financial institutions with Government stock ratio obligations. There will again be no maximum on the amount which may be held by eligible investors,” Mr Muldoon said.

Financiers were not surprised yesterday by the new issue. They had more or less expected it.

The chairman of the Finance Houses Association, Mr J. Wells, said that the private sector could be expected to take its own rates from the issue. Mr Wells was more interested in the brokerage rates to be offered, which he said had pushed the offering from the previous year up nearer to 21 per cent a year. ,