Lower interest when deficit drops—Mr Douglas

Press, 24 January 1985, Page 6

Lower interest when deficit drops —Mr Douglas

PA Wellington Interest rates will come down when the fiscal deficit drops and the Government stops trying to borrow half of all private savings, said the Minister of Finance, Mr Douglas, last evening. The only non-inflationary way to finance the huge deficit the Government inherited was to borrow from the private sector. “The only way to get private money in those sums is by offering high real interest rates,” Mr Douglas said in a speech to the Lions clubs in Hamilton.

“I don't favour high in-

terest rates, but I do favour facing facts and solving problems,” he said.

“Pumping the money supply up will solve nothing. It would ruin us.

“When the deficit comes down, and the Government can stop trying to borrow half of total private savings, interest rates will drop.” Mr Douglas said low interest rates enforced by the former Government through regulations had no basis in economic reality and were part of a “pathetic and inevitably unsuccessful” attempt to control both price and quantity of money. “The alternative to our policy is to let the money

supply and inflation get out of control and go back to the 5 per cent quarterly inflation and 1 per cent a month devaluations that we saw in 1981-82,” he said. The leader of the Social Credit Party, Mr Bruce Beetham, said in New Plymouth yesterday that the July devaluation, coupled with the Government’s latest stock tender interest rates, will ensure the highest over-all interest rates ever for New Zealand.

Inflation could be running at a rate of 18 per cent by late this year, he said. Consumer finance would then become so expensive that large amounts of consumer goods would not be sold and the retail industry would then experience a severe downturn, said Mr

Beetham. That would, in turn, have a further disastrous impact on the level of unemployment, he said. The latest consumers’ price index figures again showed that devaluation was excessive and its detrimental effects were continuing.