Call for continued curbs on credit

Press, 14 April 1984, Page 26

Call for continued curbs on credit

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Continued restrictions on credit growth and an urgent increase in export competitiveness, new products and new markets are urged in the Reserve Bank’s latest monthly bulletin. The bulletin yesterday suggests that credit growth should be restrained by: • high asset ratios, requiring financial institutions to invest money in Government stock rather than allowing the money to be lent out; and • a return to an active public debt policy, such as the Kiwi Savings Stock issues. The bulletin also expresses concern about the level of debt and the effect this could have on the long-’ term outlook. It says that if debt ratios are to be reduced, then returns from the major projects may have to be combined with improved price trends and competitiveness for exports, and/or a stronger overseas recovery than currently expected. However, the bulletin predicts that low returns from dairy and meat exports may well persist over the next few years, and urges the

Michael Hannah

development of new products and markets. It also says that greater overseas borrowing will be needed if last year’s growth in credit demand continues. However, an increase in external debt would add to the present financing burden. The bank’s advice underlines the feeling held in many financial quarters that economic measures being taken this year are more typical of a postelection year rather than of a run-up to a General Election. The Bank’s bulletin, prepared by its economic staff, reflects a concern shared by the Prime Minister, Sir. Robert Muldoon, that credit is not allowed to increase too rapidly, and so fuel inflation, while the country is running a big internal deficit which is increasing the amount of money available, and, therefore, the amount of potential credit. Measures suggested in the bulletin to restrict credit growth, such as high asset ratios, have already been implemented by Sir Robert in March and April. Financial institutions are also expecting the return of

Parliamentary reporter

a KISS-type stock, though they warn that it will have to be set at market interest rates if it is not to force interest rates up again. The bulletin also expresses concern, however, about export returns, and its statement that improvements are urgently needed reflects the seriousness of the plight facing dairy and meat exports, while the country is running up a big debt to maintain living standards. The bulletin says a surplus balance of trade over a number of years has been more than offset by the invisible deficit, which has risen from $3lB million in 1974-75 to $2132M in 1982-83. That is a rise from 3.2 per cent of gross domestic product to 6.7 per cent. The increase in the invisible deficit is “to an important extent” associated with an increase in interest payments on private and Government debt, the bulletin says. The long-term outlook, however, suggests benefits should come from the returns on “the soundly based development of New Zealand’s energy and other resources.”