THE LONDON BANK RATE.

New Zealand Herald, Volume LXVI, Issue 20402, 2 November 1929, Page 12

THE LONDON BANK RATE.

The action of the Bank of England in reducing its rediscount rate within only five weeks has apparently occasioned surprise in financial circles. Certainly on the previous occasion when the rate was raised to per cent., it was maintained for eight weeks. The recent emergency has, however, not been an exact reproduction of that experienced in 1921, so that no reliable deductions as to the further course of the bank rate can be drawn from the records of that period, when by seven changes in 15 months it was reduced from to it per cent. During the past month, there have been apprehensions of a further advance rather than anticipations of early relief. The directors of the bank, however, rarely accompany their actions with explanatory observations, and it can only bo concluded that they are now satisfied that the application of a sharp increase has sufficiently served their purpose to permit a measure of alleviation. The salutary effects are illustrated by two important indicators. The bank's gold stock reached its minimum a week after the rate was increased; the next three returns showed that the efflux had been checked and a substantial accretion made. In the last week, the total has again been diminished by £879,000, but there is still a net gain of £1,798,000. The amount is small in comparison with the year's losses, but its significance is apparent by contrast with the fact that in October last year the .bank's stock declined by £3,306,000. Of greater importance has been the recovery of the pound sterling in terms of the principal foreign currencies. Here, again, there has lately been a slight reaction, but the pound stands well above the gold points and as against the dollar is at a premium. The importance of Germany in the triangular influences that previously operated has apparently become inconsiderable,- and it is now suggested that the French demand for gold has been appeased. Probably the full effect has not yet been demonstrated of the spectacular events in the United States, but the simultaneous reduction of the New York bank rate suggests that the American authorities regard the outlook with confidence. The present decision of the Bank of England is a welcome sigh that the tension has been relieved, and encourages the hope that the favourable tendency will develop.