LONDON BANK RATE.

New Zealand Herald, Volume LXIX, Issue 21136, 19 March 1932, Page 11

LONDON BANK RATE.

ANOTHER REDUCTION.

NOW DOWN TO 3£ PER CENT. NEWS CREATES ENTHUSIASM. By Telegraph—Press Association—Copyright. LONDON, March 17. The Bank of England discount rate was further reduced to-day to 3J>- per cent, from 4 per cent. Tho city received a welcome surprise when this further reduction—the third within a month—was anonunced. . Tho rate is now back to the level of July of last year, before the world monetary disturbances were beginning to bo seriously felt. To-day's reduction was enthusiastically received, and was con- , sidered as a further welcome move to . help in tho recovery of trade. Coming so soon after the announcement of the Treasury's £116,467,382 conversion offer to Treasury bondholders, the reduction naturally stimulated tho whole stock • market for gilt-edged stocks, and a cheerful tone developed in the other sections of the Stock Exchange. Last week's reduction of tho bank rate from 5 to 4 per cent, was fully expected, though greeted with enthusiasm when announced. Tho further fall to 3£- per cent, this week, on the contrary, appears to have taken the city by surprise. The three falls which Jiavo occurred this year are reminiscent, in their intervals, of the reverse movement last year, when there were three increases, carrying tho rate from 2A- per cent, to 6 per cent. The rise was associated with tho crisis which led to suspension of the gold standard. Th« successive reductions can be taken as marking its dissipation. The first increase last year was from per cent, to 3£ per cent, on July 23. A week later, on July 30, there was a further rise to 4£ per cent. This level remained until September 21, when the final increase to 6 per cent, coincided with the suspension of gold payments by the Bank of England. This year's movements have been a reduction from 6 to 5 per cent, on February 18, last week's decrease to 4 per cent, and tho presont reduction to 3j per cent. In 1930 tlie bank rate was reduced in four steps, on February 6, March 6, March 20 and May 1, from 5 to 3 per cent. It fell to per cent, on May 14, 1931. A little later there was expectation of a fall to 2 per cent., a level that has not been in forco since 1897. Instead, financial crises fell upon Europe, and the increases already stated occurred. Auckland bankers state that the fall in tho rate does not directly bankrates in this country, but may be accepted as a sound indication of a brighter outlook in Great Biitaip, which, in time, is bound to bring improvement here. If the Bank of England can thus offer a cheaper discount rate it is because the tone of business has improved, and cheaper money must in turn tend to increase tho volume of trade. The discount rate used to have a direct relation to tho flow of gold in or out of Britain, but now that she has departed from the gold standard the situation has been radically changed and movements of the bank rate aro not so easy to interpret.