LONDON BANK RATE.

New Zealand Herald, Volume LXIX, Issue 21165, 23 April 1932, Page 10

LONDON BANK RATE.

The latest fall in the London bank rate brings it down to the level at which it stood for a year from May, 1930, to May, 1931. A further reduction to 2k per cent, preceded the series of increases made in the endeavour to check the flight from sterling which eventually forced an abandonment of the gold standard. The substantial fall in the rate since February 18 reflects the recovery Britain has made, exemplified in the realm of public finance by the Budget that appeared this week. Though the absence of gold movements now removes one factor by which the motive for changes in the bank rate could previously be assessed, it is not unreasonable to link the latest to some extent with the problem of foreign exchanges. About the time when the last previous reduction was announced there had been rapid and considerable fluctuations in the value of sterling. Financial critics had no hesitation in attributing a good deal of the movement to speculative buying. The sterling rate had been forced up to levels which it was declared the trading position did not warrant. Though loss of confidence in their own currencies by foreign operators was held responsible for some, of the intensified demand, there was insistence that speculative forward buying was the more important cause. Whatever differences there may be between those who favour a high rate and those who would prefer a low rate of exchange, there is agreement about the prejudicial effect violent fluctuations have on both industry and commerce. A low bank rate is one of the accepted deterrents to forward speculative buying. The announcement in the Budget that an exchange stabilisation fund would be established is an indication that the Treasury will be associated with efforts to prevent fluctuations of the kind that have disturbed the market several times of late. Other factors being present to make it reasonable, it can bo assumed that the reductions in the bank rate have been partly inspired by the desire to help to steady the level of foreign exchange by discouraging speculation.