Time short for interest rate drop, says P.M.

Press, 3 February 1984, Page 1

Time short for interest rate drop, says P.M.

By

MICHAEL HANNAH,

Parliamentary reporter

Financial institutions were warned last evening that the Government would not wait long for interest rates to drop further.

“Immediate action” was called for by the Prime Minister, Sir Robert Muldoon, when he opened the Wellington Savings Bank’s new head office in Wellington. He said he wished to make it clear that he expected both borrowing and lending rates to come down, and this meant there must be less competition than there had been in the immediate past. “The position that has now been reached does not permit me any lengthy waiting time,” he said. This exercise had been running for more than a year. “So I have to tell the boards and management of financial institutions, that, unless we get immediate action, further appropriate steps will be taken in the very near future,” Sir Robert said. Sir Robert denied that the steps he announced last week, effectively curbing lending limits of finance houses and trading banks, were designed to finance the internal deficit. “That aspect was not discussed between my advisers and myself when we were considering this matter,” he said.

“The increases are a penalty arising directly from the excessive deposit rates that are being offered, and the excessive increase in the finance houses’ activity. “They relate specifically to those issues and through them, of course, to the question of the supply of money and credit,” he said. Sir Robert said that most critics of the deficit ignored the contribution that had been made by huge personal income tax cuts in the 1982 Budget. The cost of that reform was about $lOOO million, roughly equalling the total increase in the internal deficit, he said. He denied tljat the increase in the deficit came from “the commonly expressed theory” that the i Government wished to see increased economic activity in election year. The Government’s princi- I pal concern at present lay i in maintaining the living standards of people, keeping i businessmen in business, and farmers on the land. i The additional purchasing i power given to personal I taxpayers over the last 18 I months had played a signifi- | cant role in preventing i

economic activity from declining further, Sir Robert said. There was now evidence of a slight upturn, but the Government did not intend that it should accelerate into any kind of “boom conditions” which could not be sustained, given the condition of New Zealand’s external accounts, though these had improved and were in a “satisfactory” condition. Sir Robert predicted that conditions would improve in the second half of the decade with increased export volumes and prices. The rate of inflation was down to a satisfactory level and the outlook for the current year was “good.” He said that negotiations on a wage-fixing system were proceeding satisfactorily, and he was confident that next year there could be a “more normal” situation without the fear of wage and salary-led inflation. “Backing up that confidence is, of course, the determination of the Government to take whatever steps may be necessary to see that the position does not deteriorate,” he said.