Slower growth predicted

Press, 2 July 1985, Page 26

Slower growth predicted

PA Wellington Financial institutions can expect slower growth in deposits from now on, according to the Governor of the Reserve Bank, Mr Spencer Russell. He was commenting on the money and credit aggregated estimates for April which were released on Friday and which indicated a faster growth in the money supply. Mr Russell said special factors were likely to result in a temporary increase in the rate of growth of the broad money supply, M 3, over the June quarter.

The first factor was the large purchases of private sector securities by the Reserve Bank in March to restore liquidity to more sustainable levels following the floating of the New Zealand dollar.

The foreign exchange drain ahead of the float was partly responsible for the low monetary growth rates recorded in the March quarter.

With the public debt programme aimed at maintaining stable, but firm, liquidity conditions over 1985-86, the allowance in the debt programme for these secu-

rities to mature would result in stronger monetary growth in the June quarter. A second factor had been stronger-than-expected injections from the Government sector over the June quarter. Mr Russell noted that this was primarily a timing factor and that the recent Budget estimates implied that the fiscal deficit would be roughly neutral in its liquidity impact over the remainder of the year. This would mean much slower growth in financial institutions’ deposits after June. Mr Russell said that fin-

ancial institutions would need to take account of this slowing in their deposit base in formulating their lending policies. The impact of the Government’s firm monetary policy would be reflected in lower monetary growth rates beyond the June quarter, once the special factors associated with the transition to the post-float policy environment had been removed. This would necessitate much slower private sector credit growth than was recorded over the first four months of 1985.