BANK RATE UP

Dominion, Volume 23, Issue 109, 1 February 1930, Page 10

BANK RATE UP

OVERDRAFTS 7 PER CENT. OPERATION AS FROM TO-DAY The chairman of the Associated Banks of New Zealand announces that, on and after to-day, the minimum overdraft rata will be increased from 6i per cent, to 7 per cent., and that the rate s of interest paid by the banks on fixed deposits will be as under:— For any period between 3 and 12 months, 3} per cent. For any period between 12 and 24 months, 4} per cent. For 24 months, 5 per cent. In view of the Dominion’s trading position as disclosed by the banking returns for the December quarter, the oversea trade figures, and the present state of the wool market, the announcement of a higher bank rate was not unexpected. Yesterday the Associated Banks announced an alteration in the rates of exchange New Zealand on London, the buying rate being reduced by 7/6 per cent., and the selling rate being Increased by 10/- per cent. The decrease in the buying rate Is designed to put the exporter on a better basis, while the increase in the. selling rate will tend to check Imports. The chairman of the Associated Banks advises that the following rates of exchange, London on New Zealand, came into operation on and after January 31: — Buying. Selling. On demand 70/- p.c. disc. 47/6 p.c. disc. 30 days 81/3 p.c. disc. 60 days . 92/6 p.c. dlso. 90 days 103/9 p.c. disc. 120 days — Telegraph transfers — 40/- p.c. disc. A cable message from Sydney states that the Australian associated banks’ rates of exchange London on Australia are the same as above. Recent Movements. It was on July 9, 1928, that the minimum overdraft rate was reduced fwm 7 per cent, to 6j per cent, the rates of interest on fixed deposits at the same time being announced as 3J per cent, for three to six months, 4 per cent, for 12 to 24 months, and 4J per cent, for two years. Those rates had been in force for exactly fourteen months. On May 9, 1927, the minimum overdraft rate was raised from 6J to 7 per cent, the rates of interest on fixed deposits being announced at the same time as 3£ per cent for any period between three and six months, 4 per cent, six to twelve months, 4j per cent. twelve months to two years, and 3 per cent, for two years. The Banks' Position.. Speaking at the annual meeting of the Bank of New Zealand in June, 1927, Mr. R. W. Gibbs, acting-chairman of directors, said the banking returns for the quarter ended' March 31, 1927, disclosed a considerable excess of advances over deposits and the indications pointed to a steady increase in these figures. “No competent critic will say that such a position could wisely be allowed to continue. The banks had to choose between an endeavour to attract additional deposits by offering a higher rate of interest or demand repayment of’ a considerable volume of advances. There can be no question as to the disastrous results to many traders and producers had the latter course been deemed the better.” At that time there was widespread criticism of the action of the banks in raising the overdraft rate, which was rendered necessary, according to a statement by Sir George Elliot, by the position into which the banks were getting. During 1928 there was considerable agitation for a reduction of the bank rate. Speaking at the annual meeting of the Bank of New Zealand on June 15, 1928, the chairman. Sir George Elliot, said there appeared then to be some justification for the agitation. But, he said, “the banks are necessarily in the best position to know what the actual present economic and financial position is, and what its future is likely to be.” They would be false to their trust if they allowed themselves to be stampeded into doing something that would not in their opinion and with their knowledge, be in the best interest of all concerned. “May I emphasise the fact that high rates of interest are not of advantage to the banks. Borrowing customers may rest assured that their bank directors will be just as pleased as they themselves when the position warrants a reduction.” And that, doubtless, is the comfort that must be taken from the present increase in the bank rate.