Interest rates up again

Press, 13 December 1986, Page 1

Interest rates up again

By

MARTIN FREETH

in Wellington

Recent poor economic indicators have hit Government stock interest rates, with tender results yesterday as much as 2 per cent higher than a month ago. The jump in rates confirmed a rising money market trend and may be followed by higher interest charges on the public.

The Reserve Bank accepted bids on the indicator five-year stock averaging 17.4 per cent, more than 1 per cent up on the previous tender, while the rates on stock of shorter maturity were as high as 21 per cent Market sources pointed to the fiscal deficit blow out and other gloomy announcements in the last two weeks as contributors to the high tender results. General uncertainty on future economic news and the tightness of Reserve Bank liquidity management were also reflected in a low level of bidding for stock. The Government could not even raise its funding target for one term of stock in the $5OO million tender. The Opposition was quick to warn of “inevitable” interest rate rises throughout the economy after the. tender. Asserting that it was the second economic indicator “blow out” of the week, National’s finance spokesman, Mr George Gair, said an inflationinterest rate spiral had again set in. The Minister of Finance, Mr Douglas, acknowledged the stock rates increase as being simply consistent with his earlier warnings of "volatility around- a downward trend” in interest charges. Mr Douglas pointed out the five-year stock interest rate was still 2 per cent lower than early this year and predicted further falls during 1987 as inflation moderated and his cuts in Government expenditure took effect on

the deficit. Market commentators are divided on whether the $460 million rise in the deficit this week will require the Government to sell more stock early in 1987, perhaps putting more pressure on interest rates.

Disclosure by Mr Douglas of his “mystery” plan to stem the deficit and the inflation - figure for this quarter are likely to be the next economic news to hit the market, but rates are expected to stay up for some weeks yet. As expected, Mr Douglas’s comment yesterday included the pledge to “hold on course” and to make no? change in his policies aimed at hitting inflation. - The Minister’s careful exposition in an address on Thursday evening of the need for that and to stick with a freer economy as the means to national growth and social prosperity came under attack yesterday from the president of the Federation of Labour, Mr Jim Knox. , . •.' Mr Doudas had , sideswiped trade unions for adopting a confrontational approach when New Zealand needed industrial cooperation to boost its productivity. Mr Knox yesterday roundly condemned the Government’s deregulation as giving licence to “corporate giants” unconcerned with the interests of New Zealand. Mr Douglas’s “text book theoiy” that making the rich richer would help those on low incomes because money would “trickle down” would not work, Mr Knox said. ' The Government was clearly becoming “very touchy” about being accused of insensitivity. Mr Knox argued that Mr Douglas should instead pursue a “strategy of planned change” ensuring better employment opportunities and regional development. Tender details, page 29