Aust interest rates rise

Press, 16 December 1985, Page 31

Aust interest rates rise

By

Jack Lowenstein

and Bruce Hextail, AAP correspondents

Sydney Australian prime interest rates broke 20 per cent on Friday for the first time, reflecting the high cost of funds on the money market because of the tight monetary policy of by Federal Government. The National Australia Bank was the first to grasp the nettle, announcing that its bench-mark rate for corporate borrowings of JAustIOO.OOO ($NZ121,000) or more would rise to 20.25 per cent from 19.75 per cent from midnight on Sunday. The Australian Bank later put its prime rate up to 20.25 per cent, also from 19.75 per cent. The lower half of the National’s split prime rate, the base lending rate, for longer-term corporate loans for sAustlOO,OOfl or more, rises to 19.75 per cent from 19.50 per cent at the same time. The bank’s home equity rate rises to 18 per cent from 17.25 per cent, and its personal loan rate to 18 per cent from 17.00 per cent. A National spokesman

blamed the rises on the high cost of raising funds faced by the bank. “We are operating on less than our normal margins. It’s really a commercial decision, though one we are not very happy about We do not like high interest rates,” he said. Today’s new level will break the previous record, set by the Australian and New Zealand Banking Group when it put up its rate io 19.85 per cent effective from last Monday. The same day, new rates of 19.75 per cent came into force at Westpac, Commonwealth Bank, Macquarie Bank, and Banque National de Paris. The State Bank of New South Wales followed suit a day later, the State Bank of South Australia on Wednesday, and the Bank of New Zealand on Friday. The newly licensed Chase AMP continues to charge 19.50 per cent, the rate it set on December 6. The State Bank of Victoria is offering the cheapest rate, at 19.25 per cent,

reached on Wednesday. The Reserve Bank’s discount rate remains at 19 per cent. Overnight cash rates have reached 23 per cent, while a more stable indicator, 90day bank, bills, reached a 3¥z year high. of. 19.9 per cent on Tuesday. Bank bills eased to the 19.25 per cent level after publication of better trade figures on Wednesday, but had edged back to 19.70 per cent by the end of the week. In the short term at least, money-market analysts see interest rates remaining high. The Melbourne brokers, J. B. Were and Son, in their December ; investment newsletter, released on Friday, saw no reason why rates should come down in the short term as the Government would need to maintain its tight monetary policy to dampen an overheating economy. The Government hopes that tight money and high short-term interest rates will allow a substantial reduction in interest rates by

mid-1986 so that the economy can keep growing at a comfortable pace. In the meantime, with imports still at high level and the export sector performing poorly, the Government has little choice but to maintain a tight grip on money supply to dampen demand ana restore confidence in the Australian dollar. , A welcome sign that this policy was having some impact came in the release of November trade figures last Wedesday. These figures showed the current account deficit, which measures the balance between Australia’s exports and imports, including invisible items such as transport and insurance payments, fell to ?Aust7sBM in November from a record |Austl.6 billion in October. However, J. B. Were said in its latest newsletter that there was the possibility the tight monetary policy would produce a slowdown, the currency might remain weak