Reserve Bank's Quarter Million Profit; State Borrowing Should Stop

Northern Advocate, 22 July 1939, Page 7

Reserve Bank's Quarter Million Profit; State Borrowing Should Stop

(From Our Parliamentary Reporter) WELLINGTON, This Day.

An announcement of profits totalling £250,285, and pointed advice to the Government to avoid recourse to the Reserve Bank for further accommodation, are features of the annual report of the Reserve Bank of New Zealand, tabled in the House of Representatives today, by the Prime Minister, Mr Savage. Stability of Prices. Generally reviewing the economic position, the report states: “The developments outlined earlier reveal that not only did general business activity and the demand for imports continue at a high level in spite of reduction in the total value of exports and a considerable net outflow of capital, but also, notwithstanding the expansion of credit represented by an increase of over £ 14,000,000, Reserve Bank accommodation to the State, including an increase of £2,300,000 in advances to the Primary Products Marketing Department, commodity prices remained relatively stable throughout the year.

A New Situation. “Now that surplus sterling reserves have been practically exhausted, however, and the Reserve Bank has been relieved of the obligation to pay its notes in sterling a different situation presents itself. “No longer will it be possible for credits created by the bank to find an outlet to any appreciable extent in the purchase of goods from overseas, except by using the bank’s statutory reserves for the purpose. “Whilst the demand for commodities was being partially satisfied by the utilisation of the Dominion’s available sterling reserves, the effect of the expansion of credit on internal prices was not very great, but in the existing circumstances any additional credits extension would inevitably tend to cause, sooner or later, a general rise in prices, with a consequent diminution in the value of all savings, wages, salaries and pensions Borrowing Should Cease. “The board would, therefore,” the report continues, “stress the desirability of the .avoidance of further recourse to the Reserve Bank for accommodation, and limiting Governmental expenditure to such a sum as can be raised by taxation, in addition to what may be borrowed from the public either in the Dominion or overseas. . “If such a policy were adopted, and. still further, if steps were taken to reduce outstanding advances from the bank, there would be a better prospect of the bank being able to .assist by granting accommodation during relatively unsatisfactory export periods, without jeopardising the financial economy of the Dominion.”

Substantial Deficit In Dairy Industry Account WELLINGTON, This Day. The survey of the Internal Marketing Account, made in the annual report of the Reserve Bank, contains the prediction of a substantial deficit at the end of the season. Valuing stocks of butter and cheese on hand at March 31 at the then current prices, and allowing the cost of realisation, the Dairy Industry Account then showed an estimated deficit of approximately £1,000,000, but since then London prices have fallen still further. K To the extent that such deficits exist,” adds the report, “they represent the creation of credits beyond the equivalent of the commodities produced. The board considers it important that the inflationary tendency of such accommodation should not be overlooked.”