Money market rates rise

Press, 16 January 1986, Page 22

Money market rates rise

PA Wellington Money market interest rates have risen steadily again in the last week, reversing the downward trend of the last two months of 1985. The rise seems sure to slow down the gradual fall in public interest rates, including those for mortgages, which has been tipped for this year. Prime 90-day commercial bills were quoted yesterday at 22.70 per cent, up sharply from 20.1 per cent a week ago. This key indicator rate was down as low as 18.85 per cent in mid-December. October 1991 Government stock was selling yesterday at 18.8 per cent, up from 17.3 per cent a week ago and 16.7 per cent at the December tender. August 1993 stock was at 18.7 per cent, up from 17.1 per cent a week ago and 16.85 per cent at the tender. Dealers said the rises mainly reflect fears that a higher than forecast Government deficit will need to be funded by extra borrowing, starting with a Government stock tender next week. There are also fears of money problems during the March, tax-flow period and that there may be some repeat of the disruption to the money market in March last year as dealers scrambled to cope with the new conditions imposed by the dollar float Dealers are now accustomed to the float, but this year the market will have to operate without the safety net of Reserve Bank compensatory deposits which have assisted it during the tax take period in recent years. These have been abolished as part of deregulation. The main problem is that no one is ever sure just how much cash will be needed in March to cover the taxflow from the banking and financial system to Government coffers, and some dealers have said the Reserve Bank may struggle to manage the tax flows. But the bank governor, Mr Spencer Russell said on Tuesday that he did not expect any problems in the bank’s liquidity jtaanagement system. Iff Australia, the direction of

interest rates in the longerterm secondary bond market will hinge on the direction of the Australian dollar in offshore markets, dealers said. Analysts surveyed by AAP reacted negatively to the result of yields in the Federal Government’s $759M Treasury bond tender, coming on top of the worse than expected December balance of payments result. In the tender the average yields were 15.053 per cent on the January 1990 bonds, 14.828 per cent on the January 1993 stock and 14.616 per cent on the March 1996 bonds. These are down from the last tender’s range of 15.128 to 15.654 per cent. British home buyers and bank customers have been given a last-minute reprieve from higher borrowing costs. The Government stepped in to head off a rise in bank base rates as money market rates surged. The banks were on the verge of increasing base rates from 12.5 per cent to at least 13.5 per cent — which would certainly have meant a rise in building society mortgage rates. As the issuing of credit facilities in Britain reaches record levels, two million people are facing court action because of their debts. The National Consumer Council revealed its figures of people awaiting trial on debtrelated charges, half a million of them owing £l2OO ($NZ3425) or more. The council said that £37.58 ($NZ107.258) is owed in housing loans and another £ISB (JNZ42.98) is owed to banks in personal loans and overdrafts. More than 100,000 home buyers are more than three months behind in their mortgages.