LONDON BANK RATE.

New Zealand Herald, Volume LXIX, Issue 21112, 20 February 1932, Page 8

LONDON BANK RATE.

The reduction of bank rate in London to 5 per cent, has been hailed with widespread satisfaction, not only because of its tangible effects but also because it is symbolical of Britain's financial recovery. The suspension of gold payments by the Bank of England last September was accompanied by the raising of the bank's discount rate from to 6 per cent. There was at first a disposition to regard this as purely an emergency measure to mitigate the first shock of the major decision, but within a few weeks, it was realised that other considerations must be subordinated to the restoration of British prestige upon stable foundations. The effects of high interest rates were at least temporarily mitigated by the depreciation of sterling and the maintenance of those rates served as an assurance that any tendency toward inflation was being officially restrained. The international situation was still violently disturbed, for Britain's suspension of sold payments set an example which other countries quickly followed and the difficulties of Germany and Central European countries were still acute. The directors of the Bank of England were evidently determined to proceed cautiously. Substantial guarantees had to be given that Britain was setting her house in order. The excellent impression made by the punctual payments of income tax was strengthened by the announcement that the Bank of England had discharged its liability to the Paris and New York central banks, and more recently evidence has been published that the task of balancing the Budget will be achieved, with a substantial surplus. Thus a situation has been created in which a reduction of interest rates is a natural development and its realisation by the decision of the bank's directors will be welcomed as testimony that effort and sacrifice have achieved their purpose. There is still a wide disparity between London and other bank rates and the present reduction will probably prove only the first step in a salutary process. There is not likely to be any serious attempt to attract foreign money to London by maintaining unduly high rates, for the experiences of last year have shaken the faith with which such investments were formerly regarded. Official policy is more likely to aim at lowering the cost of accommodation for industry and trade and at a general reduction of interest rates from the extravagantly high level at which they have been maintained ever since the war. Both political and banking policies will be devoted to the task of raising Government credit at least to the -I per cent, level, so that relief may be gained from the incubus of the 5 per cent, war loan.