MONETARY CONDITIONS.

New Zealand Herald, Volume LXI, Issue 18664, 21 March 1924, Page 8

MONETARY CONDITIONS.

Authoritative opinions from representatives of various financial institutions, published to-day, should allay any apprehensions among borrowers and restore confidence among investors regarding present and prospective monetary conditions. It may safely be said that until a few weeks ago, a forecast of generally easier conditions would not have been seriously challenged in any quarter. That a less favourable impression has since developed has been chiefly due to observations by the Prime Minister, the nature of which was manifestly due to the difficulty of maintaining a lending policy on conditions of unique generosity, rather than to conclusions formed from a comprehensive survey of the economic position. Individual investors, not unnaturally pleased to discover a prophet of dear money of such standing, have been inclined to give a literal interpretation to Mr. Massey's original statements, and to ignore a later utterance in which he proclaimed the ' fact that the Dominion's credit is unimpaired and that he is confidently postponing the issue of the loan that will presently be necessary. They should, however, be impressed by the significant fact that the large financial institutions have not been at all disturbed; that their representatives describe the relative ease with which loans arc provided on reasonable security, and that no suggestion is made of an advance in interest rates. Indirectly, light on New Zealand conditions may be got by comparison with Australia, 'where a condition of stringency has developed. This has been attributed to three factors, two of which certainly do not operate in New Zealand. The first of these is undoubtedly the active competition of both, Federal and State. Govern-

ments, who, for various reasons, are impelled to finance their expenditure by local instead of foreign loans. For a long time, State securities at 5£ per cent., free of all taxes, have been on sale over the counter, and the -agreement to subject future issues to taxation yet effective only in respect of Federal tax—made them an attractive investment in the latter part of the year. Now the rate has been raised to 6 per cent., subject to Federal tax, and in addition to the conversion loan of £19,000,000, three States at least have shortterm 6 per cent, securities " on tap " There is no equivalent drain on ttw New Zealand market. Another important element has been the policy of the central authority in reducing the note issue, and restricting it in spite of the growing needs of the population. The available currency has, in fact, not been varied iD accordance with the requirements of trade, and as the operations of the ordinary banks are largely controlled by the note issue, the result has been stringency. The third factor has been the private demand for accommodation, which is apparently relatively heavier than in New Zealand. That is evident from the trading returns, which show an excess of imports into Australia for 11 months ended November of £16,000,000, whereas New Zealand had a favourable balance for the year, while the current quarter's figures will disclose probably a record surplus of exports. Moreover, while Australia is almost reconciled to the prospect of taxation being continued on the present scale, New Zealand has unqualified pledges from the Government of further reductions this year, and concrete evidence of its ability to carry out this policy. While a lower income tax may not immediately increase the supply of money, it will have a beneficial effect on interest rates and enhance the attractions of investments on mortgage.