INTEREST RATES

Evening Star, Issue 21725, 21 May 1934, Page 7

INTEREST RATES

» EVIDENCE OF FURTHER FALL SOME LENDERS PREPARED TO AGGEPT H PER CENT. Definite indications exist that there will be a i'urtlier fall in- interest rates in New Zealand (says the Ghristchurcb 'Sim,' -writer). Authorities differ as to tlie probable extent of the decline, but there is a widespread feeling that mortgage and other interest rates wilJ before long be idfeet'cd. Tin* mortgage market is beginning to move, alter a long period of stagnation, and indisputable evidence exists that on the best class of fanning security, interest as low as 4 J per cent, would be accep-lcd by some lenders. I't is prodieted'that within the next two years it would be possible to get city mortgages at 4 per cent. It is not generally ■agreed, however, that so low a limit would be reached. 11 is considered that the fall in interest w'-ill result, in part, from the release of large sums of frozen money when people w.ith capital tire of the low rates tor bank deposits and various other fixed interest investments. While it may not be agreeable to investors to take lower rates in general investment than were customary in the past, there is reason to believe that such a position must be faced. Compensating benefits to the community as a whole would follow the release of substantial amounts of idle funds. Lawyers administering-large estates, brokers, and'representatives of lending institutions such as building societies, were among the men whose opinions on this vital topic were obtained by a Christchurch ' Sun ■' reporter the other day. , The expectation of lower interest rates in New Zealand extends beyond Cbristehurcli, of course. The view is held in government circles that an era of 8 per cent, money is in sight. J.t was assured that if 3 per cent, ever came, it would be the minimum, applying •to gilt-edged securities, investments to which more risk attached paying interest on a scale rising from the 3 per cent, basis. . '. The mortgagees who are willing to consider good lauded securities ni. in forest in the vicinity of 4.} per cent, stand a i per ceiiL. below the hank overdraft rate, which is still 5 per cent. It is considered likely that many renewals will be arranged round about 4-J per cent. Perhaps the offer of one large insurance company with its loans on policies, shows a straw in the wind. Loans on life policies came down 20 per cent, under tlie Interest'Reduction Act, from u' per cent, to £o 12s per cent. The company in question is circularising its clients stating that the current rate is 0 per cent, tor the'.first £IOO, and 5 per cent, for the remainder, and inviting policy holders who have borrower to make a fresh iirrangement on this basis. i -

Some of tlie lawyers scon were disinclined to be at ail definite in predictions about the future of interest rates, but others were more outspoken. Cases were quoted of money being lent on city mortgages at 4i per cent, now that the mortgage market has begun to revive after some three years of stagnation. At the same time, one firm at least, dealing with very large sums from estates, has not as yet had any trouble to arrange mortgages at 5 per cent., and sometimes ot per cent. Another lawyer, with at least equal responsibilities, said that though a •mortgagee would require an exceptional margin of security to lend at 4.) per cent, on a small mixed iann., that cate would bo acceptable m the case of a first-class grazing property where there was reasonable security, and, in addition, excellent personal security in the borrower. The general position and standing of the borrower was a matter which was being taken into consideration by lenders to a much greater extent than was common in the past. ' ' • It was this man.who thought that within the next two years it will probably be possible to obtain first-class mortgage investments, or ones with ready returns, in town 'properties, at 4 per cent. . Though acknowledging that a mort. gage market movement was beginning, another man said that the business so ■far being done'was so small that it chti not offer an adequate guide to future trends.. ...

Building societies are without difli duty in most instances,, obtaining 6 per cent, from borrowers on their reducible mortgages, which are iu a different category from the ordinary mort gage. On fixed mortgages on house properties the societies are still obtaining 5 per cent, to 5} per cent. As can he seen, no definite first mortgage interest figure exists at present. The appreciation in value of hotterclass Government and municipal securities was pointed to in most quarters today as significant of a willingness on the part of the investing public to accept lower interest - rates, though one dissentient considered that these securities would have slumped had there been other openings for investors when interest was reduced. With Government debentures quoted at a premium, the actual return on capital ■ invested in them is not' always as great as the nominal interest. 1* or some weeks 4 per cent, securities have been selling at a figure which would return a.buyer only about 3.V per cent., or less on his money. As a working example, 4 per cent, stock due-in, 1935, bought, at £lO5, would after allowing for accrued interest pay just over 31 per cent. •' ' There is in New Zealand a vast amount of money on deposit, and it is' considered that before long the owners, of this money will tire of low- interest—the, maximum hunk deposit rate on the longest term deposits is now only 3 per cent.—and would release a flood of funds for more speculative forms of investment. ;

There was almost unanimity in the belief that so mucii money v,i 11 become available that rates will have to be made attractively low to win borrowers —a contrast to the state ot ,a(fairs which has existed for so long. Unless another land boom started, it was stated, the dominion was probably m for a long period of cheap money. The small minority which departed from this view thought that as genera! conditions improve the supply of money will not lie adequate j;o meet the demand, so that money will become dearer instead of cheaper. An interesting spceuhn.iou was whether the functioning of the newlycreated Reserve Bank of New Zealand would help to reduce interest rates. It was advanced as a possibility that the .Reserve Bank would discharge the Treasury bills with Hcscrve Bank notes -—New Zealand’s only legal note tender after the Reserve Bank starts operations—with tlie result that the trading banks would have an abundance oi money available tor use in trade or business. It would probably be an over-supply, which would force down tbo price, of money, and that in turn would lend to bring down interest rates. Interest rates were alter all only the price of money, and the high rates

ruling .before the slump wore an artificial creation. “If only people will realise that interest rates are coming down develop ment works and so on which have been postponed for so long will be started, a broker said. “ In-Christchurch alone a tremendous alnonut of building could he done if lenders will recognise that they can expect only a comparatively I-w interest return on their money. (I:uo building benefits other trades benefit This is only ono direction in .which a reduction of interest rates would have in the broad sense a beneficial reaction, on the community as a whole.” Mr J. M. Keynes, the English economist and chairman of the National Mutual Life Assurance Society of London, recently expressed the opinion that the present rates of interest at .Home were not abnormally low. and that they might he expected to fall lower and remain at the lower level for a long time. He said: There is overwhelming evidence that even the present reduced rate of 31- per cent, on long-term gilt-edged stocks is far above the equilibrium level—meaning by “ equilibrium ” the rate which is compatible with the full employment of our resources of men and of equipment. It is often forgotten that 34 per cent, is much in excess of the average yield of Consols which ruled over the forty years previous to the war—namely’, just under 3 per cent., or ci on the average viold which ruled over the eighty years from 1835 to 1914 —namely, just over 3 per cent. . . . With the opportunities for safe and profitable investment abroad greatly curtailed, as much by the unfortunate results of past investment as by the diminished opportunities for new investment, Great Britain and the United States would, if they were to return to a full employment of their resources, save sums so vast- that they could not possibly be invested to yield anything aproaching 3f per cent, ift is highly probable that the equilibrium rate is not above 2) per cent, for long-term gilt : edged investment, and may he appreciably less. It was stated in Christchurch* that if the equilibrium rate in England settled down to 2i per cent., New Zealand might come about 4 per cent, above that, to 3 per cent., for best gilt-edged long-term investments, as a minimum level of New Zealand investment interest. MEAT MARKET Press Association—By Telegraph—Copyright. LONDON, May 19. New Zealand i'hcep.—Canterbury and North Island selected cross-bred wethers and maiden eyes ; 48-5611), SJid ; 57-6411), 4|d; 65-7211), 4Jd. North Island: 48-56)b, 5Jd; 67-C4lb, ,4Jd; 65721 b, 4-id. North Island ewes; Under Australian Sheep.—First quality cross-bred and/or merino wethers: 40651 h, 4Jd. Second quality: 30-5511), 3Jd. Ewes : ■ 30-5511), 42 cl. Argentine Sheep. First quality cross-bred wethers: 48-641 b, 4|cl; 6572ib, 4Jd. Patagonian Sheep.—Wethers and/or maiden owes: 501 b and under, -Id. Ewes: 40-5011), 7ld, . Patagonian Lambs.—First quality; 361 b and under, 6-gcl; 37-4211), 6Jd. Second quality: Average about 30lb, Old. . Argentine Lambs.—First quality’: 361 b and under, Gild; 37-4211), 6id.. Second quality; Average about 2811), 6Jd. New Zealand Lambs.—CanterburyFirst quality: 361 h and under, Gild;’ 37-42ib, 63d; 43-5011), 7|d. Second quality: Average about 321 b, —. Other South Island: 301 h and under, 7-id; 37421 b, Gild; 43-5011), bjd. Selected North Island., including Downs: 361 b and under, 7fd; 37-4211), 6Jcl; 43-501 h, o’Jd. Second quality: Average about 321 b, 7id. Other North Island—First quality; 361 b and under, 7-gd; 37-4211), bisd. Second quality : Average ; about 321 b, 7id. , Australian Lanibs.—Victorian—-First' quulitv; 3611) and under, 6Jd; 37-4211), bid. “Second quality; 301 b , and. under, bipl. Other'States—First quality: 361 b and under, 6Jcl. Second quality: 361 b and under, 6£d. All States —third quality : Average about 2blb, bid. New Zealand Frozen Beef.—Ox tores, 160-22011), 2-i-d; ox hinds, 160-22011), 3id. , Australian Frozen Beef.—Ox hinds, 1601 b and under, 3£d ; ox hinds, over •16010, 3id; ox crops, 1001 b and under, 2gd; ox crops, over lOOlb, 2-3 d. Argentine Oh died Beet.—Ox fores, 160-22011), 2-Jd; ox hinds, 160-22011), ssd. .. New -Zealand Pigs.—bust quality: 60-8011), 6tl; 81-100Ib, 6d; 101-12011), ° S Australian Pigs.—First quality : 601001 b (average about 801 b), ogd; 1011201 b, 5Jd.