INTEREST AND INVESTMENTS

Evening Post, Volume CXIX, Issue 126, 30 May 1935, Page 8

INTEREST AND INVESTMENTS

Indications have been discerned in the Australian money market for some time past that rktes of interest are tending upward. .The cablegram published today is a definite sign that money is becoming dearer. As was shown in a review of the Australian consolidated loans by the National Bank of Australasia (summarised in "The Post" yesterday) a distinctly hardening movement in interest rates is in progress in the Commonwealth. The Federal Government has gone on to the local market for a new loan of £12,500,000 and is offering 8s per cent, more for it than was paid when the £15,000,000 local loan was issued in December last. The new loan is issued at £99 10s at 3 3-8 per cent., and the term is for 14 years. How it will "go off" with the public is yet to be seen. But investors the world over appear indisposed to accept the, exceedingly low rates that have been current during the past two to three years and the tendency of the money market in London as in Australia is now upward. British Treasury bills as recently as last February were tendered for at gs low a rate as 4s 2.13 d per cent., but since March last have settled round about 10s 3d per cent., but the average rate quoted last Friday was 10s 5.90 d per cent. The rise is not much, but it is a rise, and it is distantly, reflected in the terms for the latest of Australian internal loans. In any case cheap money, so earnestly desired by Governments and other borrowers, is not necessarily cheap in the long run if it leads, as it has done in New Zealand and Australia, to inflated values for land and commodities. From jthe higher rate for the £12,500,000 Commonwealth loan now befoTe the investing public •it would appear jthat. the , Federal Government's, advisers yealise that the money market is rising and now is the time to take it at the turn. The terms of the loan are not without significance for New Zealand.- "■ Another significant point raised by the chairman of the National Bank of Australasia, Sir James Elder, is: "Are -stability and recovery checked by a too low rate of interest?" Sir James Elder says there is a point in interest rates below which it would be unwise to go. Without defining that point, he suggests that it has been reached, or about reached, in Australia; and j one of the signs Jthereof is an inclination by small savers to grow tired of the bank rates of interest and to risk their savings in less secure investments offering higher return on capital. Always and everywhere there is a temptation to the small capitalist—to him whose capital is too small to provide a! sufficient income at gilt-edged in-! terest rates—to speculate for higher return, at the risk of. losing his capital. And no doubt this tempting of the small capitalist—the special victim of the go-getter—in-creases as interest rates fall. It is, however, but one factor in many. The anxiety of the small saver about his interest at least proves that hej is not at the moment anxious about his capital. Compare this with the rush of the French people for gold, \ and the exodus of gold from I France. That is not a protest against low interest but a panic over capital. J