THE PRICE OF MONEY

Evening Post, Volume CI, Issue 17, 20 January 1921, Page 8

THE PRICE OF MONEY

A RISE IN THE MARKET

REVISED DEPOSIT RATES,

There has been a significant advance made in the price of money. The fact is disclosed in the announcement made by the banks of the alterations set out hereunde^, nnd operative as Irom to-"£ay. They are- given in comparison with the previous rateb. Ther& is a revival of the term of three months for tile acceptance by the banks of money on deposit, a term that was in operation many years ago. The new arA former rates ior fixed deposits compare as follow : — Former rates ICew rates

It is expected that the building and lending companies and similar institutions will increase their rates. These are as follow: Three months, 3 per cent. ; six months, 3j- per cent. ; twelve months, 4^ par cent. The Post Office .'Savings Bank rates 6f interest on deposits up to £300 was raised some time ago frohi 3J por cent, to 4 psr tent,. There has also been a further advance of 5 per cent, in the rate of interest on bank overdrafts which, for what may be described as .absolutely gilt-eged advances, is now 6J> per cent. ; and the rate of discounts is raised to 6 per cent.

The exchange buying and selling rates on London have also been revised, but the only'alteration is in the- telegraphic transfer rats, which to-day is 3 per cent., an advance of 10s per cent. No other change has been made in the schedule of exchange l-ates for both selling and buying. .

The reason for the advance in the deposit rates and the stiffening of the rates on overdrdafts is to bo found in the growth'of the advances made by the banks, or overdrafts, as revealed in the bank returns, for tha quarter ended 31st December. These showed that the excess of deposits over advances was but £2,338,598 as compared with an excess of £13,463,219 for the corresponding quarter of 1919 True, there was a margin of £2,338,598; but the growth of the overdrafts has been much greater than that of the deposits (omitting Government deposits) for ilie past 12montns. The deposits and advances for the past year at the end of their respective quarters stood as follow: —

Deposits. Advances. Dec. (1919) 45,569,975 32,106,756 March (1920) ... 50,665,091 32,042,042 June (1920) 54,598,092 34,789,581 Sept. (1920) .... 53,131,692 39,017,808 Dec. (1920) 49,456,893 47,118,296 This table shows how, since March last, the deposits have contracted, and how since then ■ the advances or overdrafts have increased by- over £15,000,000. This position has been brought about in large part by the increased demands made upon the banks for the financing of imports which arrived (and are -arriving) in far greater volume than was expected, and in many cases far sooner than was anticipated. Then there have becti advances by the banks to enable subscriptions to be made 'o Government loans to which subscription was compulsory ; and further advances to producers, especially pastoralists, who had been receiving returns on produce long before it could be shipped. It had been bought and paid for by the Imperial Government, upon, whom rested the ie: sponsibility for its export. Then came the cessation of tho Imperial Governments purchases of.^ wool, meat, and cheeso^—that of butter"was carried on at a greatly enhanced price, and it will continue unvT 31st March next. The cheese purchase came to an end, but the forward market gave, and the "spot" market is giving, a return to cheese-makers of Id to 2d per pound more than they teceived from tho Imperial Government. It is not so with respect to wool. That lias come down in price with a run. Th« prospects of meat are at present reason ably satisfactory. In any case, the banks have been and are likely to be called upon to a<K comodate producers whose past re-

turns had been highly remunerative. They have also of late had to substantially ireet importers' demands. That the increases in advances as set out above plainly shows. It is evident that the effect of the rise in the overdraft rate will bb to cause the speedy sale of the heavy lines of imported goods in excess of actual day-to-day requirements.

three months ... —■ !ix months 2 ?wolve months ... 3£-Venty-four mths. 4 3 34 4 4i