THE H.B. TRIBUNE THURSDAY, MARCH 9, 1933 INTEREST RATES.

Hawke's Bay Tribune, Volume XXIII, Issue 74, 9 March 1933, Page 6

THE H.B. TRIBUNE THURSDAY, MARCH 9, 1933 INTEREST RATES.

Immersed as we are just now in a big State-loans conversion scheme of our own, it will probably be only a comparative few who will be taking note of the fate of -a relatively small Australian conversion issue recently placed upon the London market. This Commonwealth issue has been made to take the place of a New South Wales loan of £94 million falling due on Ist July next. It was sought to convert this loan on the footing of substituting, at par, Federal stock bearing interest at 4 per cent, and maturing in 1970, with an option to redeem at any time after 1955. These terms were considered in London sufficiently attractive to secure underwriting there. After being before existing bondholders and potential cash subscribers for more than a fortnight, we are now told that something less than two-thirds was taken up by them, the underwriters having to shoulder the balance. Of course, this is not to be counted a failure, and doubtless, given a little time, the underwriters will be able to unload without loss. All the same, however, it serves .to show that British investors are not very enthusiastic about taking up oversea dominion loans on these terms.

In this there is nothing very much to be surprised at, for it is to be remembered that Great Britain’s own huge war-loan conversion was put out at -34 per cent, with—what is often overlooked—a £ cash bonus to those who cared to take it. When we bear in mind that even in normal times it

was deemed necessary to offer on Australian and New Zealand issues at least one-half per cent, better rate of interest than could be got from Imperial securities, it will be understood why the British public evinced no great eagerness to take up this Australian issue. As yet we have not been told the proportion of actual conversion by old bondholders to cash subscriptions by new lenders. But the fact that only some two-thirds in all of this comparatively small amount was subscribed suggests strongly that sympathetic sentiment towards the dominions did not enter very largely into the transaction. These are points that should be borne in mind when considering the suggestions which have been put forward that our own Government and local bodies should appeal to British holders for reductions in the rates of interest

currant upon New Zealand securi- 1 ties that still have years to before being redeemable. They must also occasion some serious misgivings as to whether it will be possible to institute or maintain the low standard rates of interest at which our own Govern, ment is aiming, for rates here on public borrowing are bound to be largely influenced by the rates ruling in London. So far as the local money market is concerned a great deal must, of course, depend upon the attitude the Government will adopt when, as is pretty well sure to be the ease, it calls for further loan-money, whether short or long-term. As to its intentions in this respect no indication has as yet been given. Strict limitations have been put upon local bodies as to the rate of interest they may offer in the flotation of loans already authorised, while the Loans Board has been given power to prescribe rates for loans yet to be authorised. But, of course, there are no such restrictions to be effectively imposed upon the Government. It is, however, very easy to see that unless the Government is prepared to exercise some corresponding restraint upon its own borrowing activities, its efforts at bringing about a general reduction in interest rates will ,to a great extent, be nullified. As things are at present, there can be no reasonable doubt that the comparatively high rates that have come into vogue during the last few years have been in great measure due to the rates which the Government has constantly kept on offer to the lending public. Unless there is some change in the course that has thus been so long pursued—and so far we have had no definite promise of any—then it is to be feared that, so far as concerns any benefit to trade and industry, the sacrifices now asked for will fall far short of having the effects held out by way of inducement.