BANK RATE

Nelson Evening Mail, Volume LXIV, 4 February 1930, Page 4

BANK RATE

REASONS FOR RISE

AND PROBABLE EFFECT

STATEMENT BY PROFESSOR

TOCKER

(By • Telegraph—Special to "Tho Mail")

CHRISTCHURCH, 3rd February. That tho recently announced rise in tho bank rate may have the effect of modifying the depression which will follow on the fall in export prices of New Zealand produce is the opinion of Professor A. 11. Tocker, Professor of Economics at Canterbury College. The rea•jons lor the rise and its probable effect were explained to a reporter by Professor Tocker to-day. "It is not surprising that the New Zealand banks have tiad to fall into line with the general rise in interest rates which had occurred in many countries," he said. "The principal cause is probably the fact that since investments in public and other securities have become more attractive the banks have had to raise the rates on : fixed deposit so as to hold them. It must not be forgotten that New Zealand banking is very closely associated with that of Australia, and that Australia has been passing through a period of difficulty which has restricted the hold on bank balances. Since these Eondon balances for both Australia ana New Zealand are commonly grouped together this has rneant a reduction in the real reserves, against which the banks make loans. This renders some restriction of credit inevitable, and the effect of the increased rate on overdrafts should be to restrict credits. This, together with the recent movement in the exchange rate, will tend to lessen imports. Although up to the present time a favourable balance of trade has been maintained, it appears inevitable that the balance will become less favourable owing to the heavy fall in some export prices and the expansion of imports during recent months. When a change in the trade balance similar to that we are now entering occurred about the end of 1925, the banks deferred raising their rates as long as possible, and many people held the view that the subsequent slump was more severe on that account. It is hoped on this occasion that the early action by banks may nip the tendency to over import in the bud, and thereby modify the ■ extent of the depression that is sure to ensue owing to the fall in export ; prices."