Interest rates up

Press, 9 October 1987, Page 14

Interest rates up

The New Zealand money market rates rose in active morning trading yesterday. Sentiment turned bearish after the rise in the Reserve Bank’s rediscount rate on Wednesday and downside movement was limited, dealers said. The call rate rose to 20.25 per cent against 19.50 per cent at mid-session on Wednesday, and 90-day bank bills were 19.40 per cent, compared with 19.10 per cent The Reserve Bank's discount margin rose to 1.5 per cent from 1.0 per cent above market rates. “The bank’s action was a technical adjustment but sentiment sent market rates spinning north,” a dealer said. “I found the logic hard to understand. Cash was tight It was unnecessary,” said another. Government bond rates also rose in active trading after the Reserve Bank's action. Dealers said rates had settled and may ease slightly before rising higher. Benchmark July, 1992, bonds rose to 16.47 per cent against 16.34

per cent on Wednesday midsession, and February, 1992, bonds rose to 16.86 per cent against 16.72 per cent The Reserve Bank will offer S2SOM In Government stock in two different maturities at a 14 per cent coupon in its tender scheduled for October 15. The bank said yesterday in a statement that it would offer SISOM of stock maturing October, 1990, and SIOOM maturing July, 1992. The October tender will be the second to last one for the March, 1988, year according to the revised debt programme, announced by the bank on June 25. Many American banks have raised their prime lending rate from 8.75 per cent to 9.25 per cent Analysts said the banks’ move came as no complete surprise, given the recent rise of open-market interest rates that determine the banks* cost of obtaining money to lend. The half-point rise fulfilled economists’ predictions that rising money market rates would force U 5. interest rates higher. . The rise was led by Chase

Manhattan Bank, which said it acted because of file higher money market rates, which raise the cost of money to banks. On September 4 the banks raised the prime by half a percentage point after the Federal Reserve System, the U 5. central bank, lifted its discount rate from 5.5 per cent to 6.0 per cent The discount rate is charged on the systems loans to banks. Money market rates since have climbed steadily on speculation that the Federal Reserve Board would be forced to tighten credit and raise the discount rate again to quell fears of inflation. With Interest rates edging higher in West Germany and Japan, the Federal Reserve System may have to push rates higher to defend the weak dollar and keep inflation at bay, economists say. In New Zealand the Reserve Bank move on Wednesday to tighten its monetary policy showed panic had broken out in the Government, the Leader of the Opposition, Mr Bolger said.