Govt reduces banks’ asset ratio

Press, 30 August 1984, Page 2

Govt reduces banks’ asset ratio

By

MICHAEL HANNAH

in Wellington

The Government has relaxed its monthly requirement on trading banks to invest in Government stock, reducing the risk of further rises in interest rates in the month before the Budget is presented. A reserve asset ratio of 26.5 per cent was set yesterday for September, three percentage points lower than the August ratio, which required banks to invest 29.5 per cent of their reserves in Government Stock. At the same time, a free reserves margin of zero was set, compared with a tight negative margin of minus $lOO million, set for August. The rise in the margin allows banks more room to use their reserves for credit rather than investment in Government stock, by reducing the likelihood that the banks will have to borrow at penal rates from the Reserve Bank. Rather than loosening up credit generally in September — banks- are still limited to 1 per cent monthly growth in credit — the new ratio is expected to allow banks to meet tradi-

tional demands for credit in September from tax payments. Banking sources indicated that about $450 million is likely to be needed to meet tax payments next month. Other demand for loans appears uncertain, because lending dropped for the first two weeks of August as a result of the heavy use of credit during the run on the dollar in July. At the same time, interest rates had risen, possibly dampening some demand as well.