General reduction? in interest rates

Press, 14 December 1985, Page 21

General reduction? in interest rates

By

SIMON LOUISSON

in Wellington

Wholesale interest rates continued to drop and the effects are filtering through to the retail market for the first time since Labour took office 17 months ago.

Dealers attribute the fall in rates to seasonal high liquidity, lower lending demand and lower inflationary expectations. Westpac Banking Corporation announced that it will drop its indicator lending rate by 1 per cent to 18.75 per cent. The Westpac treasurer, Mr David Booth, said the lending rate which affects term loans and overdrafts was designed to be flexible, but he would expect the drop to flow on to to other areas such as bankcards and mortgages.

Both the ANZ and BNZ are to make announcements next week which will see their rates come down. National does not intend to lower its base rate but its lending manager, Mr Cliff Grice, said its rate of 18.5 per cent will still be lower than other banks’ new rates. ANZ deposit rates fell 1.5 per cent this week, with its top rate down from 21 per cent for five months to 19.5 per cent for six months. Mr Tom Tennant, of the BNZ, said that his bank was assessing the impact of the fall of deposit rates. There had been some softening in demand for lending, but he did expect retail rates to fall as quickly as wholesale rates.

“While wholesale funding rates have come down dramatically we’re locked into term deposits for up to 24 months ahead,” he said.

Rates accepted for the ?300M December stock tender were about in line with market expectations, but still lower than previous months. Average rates accepted for 1991 maturity were down 1.1 per cent on the November tender and

0.35 per cent for 1993 maturity stock. Rates for the 1991 stock were down 3 per cent to 16.69 per cent compared with the October and' August tenders. The SIOOM offered was all picked up at the one rate, which suggests one buyer who had aggressively bid a low rate. More than S4SOM was bid for thatstock, leaving many buyers locked out.

Dealers were siiprised at the aggression of the bidding and the bid indicated that the buyer expected rates to come off further. In the secondary market 1991 stock had been trading at 17 per cent. Over-all, there were more than SIB bid for the S3OOM

on offer. The weighted average for 1989 stock was 17.360 per cent and for 1993 stock it was 16.848.

September 1989 stock: offered, $100M; bid, S3I6M; sold, 3100 M; successful yields, 17.30 per cent to 17.37 per cent; weighted average, 17.36. October 1991 stock: offered, $100M; bid, $450.2M; sold, 5100; successful yields, 16.69 per cent; weighted average, 16.69; previous average 17.783. August 1993 stock: offered, $100M; bid, $323M; sold, $100M; successful yields, 16.8 pep cent to 16.85 per cent; weighted average, 16.848; previous average, 17.195.

The Minister of Finance, Mr Roger Douglas, said that the tender results confirmed there was a signficant downward trend and it showed the Government’s fiscal policies were working. In another development, the Government closed the first issue of Kiwi Bonds after money market dealers had taken advantage of its higher rate over Government stock.

Mr Douglas said that it was closed because of the fall in rates in secondary market yields. The intention was to keep the bonds below those rates.

On Thursday some money market dealers took off the 1 per cent advantage of the bonds over Government stock and more than $lOO was purchased. The bonds were not intended as a wholesale instrument so it was no surprise that the issue was withdrawn.

A new Kiwi bond issue with a rate of 16.5 per cent for two and four years was announced yesterday.

The New Zealand dollar continued to fall yesterday but dealers did not attribute it to the fall in interest rates.