Interest rates hold firm

Press, 24 April 1987, Page 29

Interest rates hold firm

PA Wellington Interest rates held firm on the wholesale money market yesterday, with on-call money rising to 37 per cent by mid-morning. On-call (or overnight) money is the cash that businesses and banks lend one another for a day. Yesterday’s rate was up from 32.84 per cent on Wednesday and compares with a level of 20 per cent or under for most of last year.

Dealers said the shortterm market was nervous and volatile and seemed unsure of how it could break out of the 30 per cent rut, especially given tight Reserve Bank management of the short-term market. They said the bank’s maintenance of tight margins in the short-term market meant that any company or trader not getting its cash flow exactly right was having to pay heavily to borrow any money it needed. Dealers added that with

funding costs so high at the short end, there was no room for the anticipated drop in long-term rates, and this drop would probably not occur until the short-term rates came down.

Despite the high on-call rates yesterday, the Reserve Bank gave only minor assistance to the market, injecting just $2O million by way of sellbacks on May 4 stock. The average interest rate was high at 32.85 per cent. Dealers bid $B5 million. Prime 90-day commercial bills - firmed sharply yesterday to 27.8 per cent (27.02 per cent on Wednesday) in a direct reaction to the higher short-term funding costs. Five-year February, 1992, Government bonds firmed to 17.6 per cent (17.5 per cent) while July, 1992, bonds hit 17.05 per cent (16.88 per cent at last week’s tender).

Thfee-year 1990 bonds sold at 18.8 per cent (18.3 per cent at the tender).