$800M boost to economy

Press, 20 July 1984, Page 1

$800M boost to economy

Similarly, yen and sterling remained stable. The yen closed at 243.60/70 against the United States dollar from its 243.48/58

opening and sterling finished at 1.3150/60 United States dollars, compared with its opening at 1.3167/ 77.

The Australian dollar traded within a 40-point range opening at 0.8253/60 United States dollars and closing at 0.8273/80.

Call rates on the money market in New Zealand fell several percentage points from more than 20 per cent as general liquidity improved. In other moves, A.G.C., the Westpac subsidiary, announced new interest rates from yesterday. These varied from 10.5 per cent at call to a maximum at two years of 14 per cent.

A.G.C. also announced the reintroduction of compounding interest-rate terms for investments of two years or more.

Broadbank lifted the top rate it pays investors for three-year debenture money to 13.25 per cent. Personal loans, however, will average about 17.5 per cent to 18 per cent. C.B.A. Finance, the largest non-member of the Finance Houses Association, set an interim rate for investments less than $20,000 over two or three years at 12.5 per cent. For investments more than $20,000, the rate is 13.5 per cent. Loans will cost borrowers between 18 per cent and 19 per cent.

MICHAEL HANNAH

in Wellington About $BOO million will start flowing-back into the New Zealand economy today as the first post-de-valuation transactions are settled. Trading banks estimated yesterday that in the first two days after the New Zealand dollar was devalued about $BOO million was notified for exchange into New Zealand dollars. It takes two days for these transactions to be settled, and so the money supply will feel the first effects of the devaluation today as money is formally converted from foreign currencies into New Zealand dollars. One source estimated that it would take until the end of the month before $1 billion net was returned to the New Zealand money supply. He believed some people were holding out, waiting to see developments in the money market before transferring their funds. The overnight high interest rates recorded on Tuesday evening — rates of up to 30 per cent were quoted — reflected the tightness of the money market before the devaluation, the source said. Those rates had dropped significantly by yesterday afternoon as notifications on the foreign exchange market indicated that there would be more money available from today. It is expected that interest rates will have settled down by the first week of August, but they are likely to affect both retail and wholesale rates, according to trading banks. It was initially felt that only wholesale rates on big deposits would be affected, but banks yesterday started to announce new rates on retail rates as well, showing jumps of between 1.5 per cent and, in what was called an “isolated” case, 4 per cent. There was speculation also yesterday that the in-

coming Labour Government plans to hold an early tender of Government stock, possibly as soon as July 26 or July 27, to test the money supply. An early tender would be interpreted as a signal that the Labour Administration intends to maintain a tight hold on the money supply, and so deter a big rise in inflation. The tender would also be watched by the market for signs of Labour’s preparedness to allow the market to determine interest rates. Earlier tenders were strictly limited in the yields allowed by the Government, in line with a Government stock rate of 8 per cent. The result of an early tender would also give the incoming Government an idea of the reserves institutions are holding, so that a realistic reserve asset ratio can be set by July 30 for the month of August. This ratio would determine how much liquidity was left in the market, and how much credit is available to customers in August. The Press Association reports that yesterday the New Zealand dollar was trading at 0.4965/68 United States dollars at the top range of the Reserve Bank indicative rate which closed at 0.4962. The opening rate was 0.4963. The Reserve Bank has withdrawn from the forwards market and the pressure has largely come off, dealers said. But, they said, cover for the short months was still about 15 per cent. This compares with the 25 per cent rate before the General Election on July 14. The Reserve Bank also lifted restrictions on nonresidents’ purchasing New Zealand dollars, a move imposed to reduce speculation in the pre-election run on the New Zealand dollar. There was little movement in the main currencies yesterday. The United States dollar closed at 2.8560/70 marks which was almost unchanged from its opening.