Bank urged to loosen up

Press, 4 April 1989, Page 37

Bank urged to loosen up

PA Wellington The Reserve Bank has been urged to loosen monetary polity to take account of cash held by superannuation funds. An economist, John Gallacher, of the sharebroker, Garlick and Co, said superannuation funds were holding about $1.5 billion in cash because of recent changes to tax rules.

Tight monetary policy was worsening a cash shortage, keeping interest rates higher than they needed to be, Mr Gallacher said yesterday.

Mr Gallacher said superannuation funds were holding on to more cash than normal because they were uncertain how

much would be withdrawn by individuals as a result of recent tax changes. The changes would mean that previously taxfree contributions were taxed while benefits become tax-free.

However, superannuation schemes still have to be approved by the Government Actuary and this could take until April 1 next year. "So we are not going to get a rapid move away from holding cash,” Mr Gallacher said.

"This is exaggerating the effect of the tight monetary policy.”

He said there was enough slack in the economy to allow a looser monetary setting without refuelling inflation.