On-call interest of up to 55 per cent

Press, 31 August 1985, Page 24

On-call interest of up to 55 per cent

PA Wellington On-call money market interest rates moved as high as 55 per cent yesterday as banks squared their books for the end of the month. Dealers said the rise reflected banks having to fund P.A.Y.E. and sales tax cheques that leave the system at this time. At 10.30 a.m. yesterday call deposit rates were about 41 per cent, with prime 90-day commercial bills at 27.25 per cent and 90-day certificate of deposits 26.75 per cent The 90-day bills had not been above 27 per cent since March when they hit a peak of 35.45 per cent during a volatile tax drain period.

Dealers’ opinions varied on the effects of next week’s tax drain on interest rates. One said: “It’s nothing to do with the September tax flow. It’s just normal end of month behaviour.” Banks were chasing money on the overnight market to avoid selling securities back to the Reserve Bank. Another dealer said the Reserve Bank had discounted about $lOO million worth of Treasury bills so banks could fund themselves to square off. “Major institutions have

covered themselves for next week. Their views on how they feel the tax drain might be on Friday next week and the following week has been reflected in current rates,” he said. “A lot of people are borrowing and investing for the next two weeks.” He said another factor behind the rise in interest rates was high forward rates on the foreign exchange market — which reflected an overseas perception of what interest rates should be in New Zealand.