OVERDRAFT RATE
IF IT WERE LOWERED
WHO WOULD BENEFIT?
COMMERCIAL VIEW
Were the overdraft irate lowered, what would be the effect on in- . dustry and commerce? This was the question put by ♦'The Post" to a prominent business man in Wellington, head of a concern with branches throughout the Dominion and interests in London. "One does not, of course, know what the Government's reasons are for wishing to reduce the overdraft rate, but the probable effect would be in the direction of assisting subscriptions to war loans in the future, particularly in the case of those persons who would feel compelled to subscribe even though they had to borrow from the bank to do it," he -said. "It would also possibly stimulate the early payment of income tax in order to obtain the interest which can be earned in this manner. It would also assist farmers who are leaning on the banks to some extent; though assuming the reduction, to be i per cent., it would not be very noticeable to the individual. There would be a tendency, presumably, to lower mortgage rates. EFFECT ON INDUSTRY. "The effect, in my opinion, on indus-trial-expansion would be nil, and such expansion, should in any.event take place through new 'capital flotations, which is the only healthy form of industrial expansion. It would have little or no effect oh spending or consumption; and it>/would have no effect on importations, for these are alreadyregulated and strictly limited., "It would probably work in the direction of relieving the banks of deposits and sending capital values up with a consequent reduction in the return shown on investments. HOARDED NOTES. "Any reduction in interest rates today wuld probably stimulate hoarding of notes. A study' of the notes in. circulation tends to prove that hoard-, ing is going on to a considerable extent, and the lower the return offered the more, one would imagine, will this tendency be aggravated. "To sum up, it would seem to me that the actual practical effect of a reduction in the overdraft rate of. say h per cent, would be practically nil. After all, a reduction in overdraft rates merely means takingfrom one section and giving to another. Seeing that the total deposits are £28,000,000 and the total advances £51,000,000 (both in round figures), the actual difference in the country's economy of an alteration of a per cent, in the bank overdraft rate will be seen to be of very minor importance. THRIFT PENALISED. "A high authority on finance has stated that low interest rates, that i» rates below where they would- have ruled on the basis of the savings of the community, have not been beneficial to the private!; citizen. They have penalised thrift and discouraged savings. They have diminished the incomes of all who have savings accounts and of all who hold life insurance policies. This was1 not said of New Zealand, but I leave? you to judge how far it may be applicable, to .this country." ■ '- .. .
Permanent link to this item
https://paperspast.natlib.govt.nz/newspapers/EP19410711.2.72
Bibliographic details
Evening Post, Volume CXXXII, Issue 10, 11 July 1941, Page 6
Word Count
496OVERDRAFT RATE Evening Post, Volume CXXXII, Issue 10, 11 July 1941, Page 6
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