RESERVE BANK RATE

New Zealand Herald, Volume LXXII, Issue 22173, 29 July 1935, Page 5

RESERVE BANK RATE

DISCOUNT AND REDISCOUNT REDUCTION TO- 3* PER CENT __ ',4'-. FIRST CHANGE IN YEAR [by telegraph—press association] WELLINGTON, Saturday The Reserve Bank announces that its minimum rate for discounting bills will be reduced to 3i per cent per annum as from July 29. It is explained that the minimum rat© at which the Reserve Bank is willing to discount bills should not be confused with the rate at which' trading banks are prepared to grant overdraft facilities. During a period of easy money conditions it is not unusual for the bank rate of a country, that is, the discount rate of the central bank, to be considerably below the ordinary lending rate of other banks. Therefore the fall in the central bank's rate does not necessarily indicate that a corresponding movement should or will take place in ihe rates quoted by other banks. The rate previously quoted by the Reserve Bank was 4 per cent, the announcement of it having been published on August 1 last year, the day on which the bank commenced business. The statement then made ran:—"The Reserve Bank announces that until further notice the minimum rate at which it is prepared to discount or rediscount bills is 4 per cent per annum. It is explained that this rate applies only to bills which are .payable in New Zealand and are covered by section 13 of the Reserve Bank Act,' 1933. Being a minimum rate, it applies only to those eligible bills which are regarded as first class." Section 13, referred to. defined the bills which the bank might discount or rediscount as " bills of exchange, promissory notes and other documents*arising out of bona fide commercial transactions, bearing two or more good signatures and maturing within one hundred and twenty days after the date of their acquisition by the bank." This was amended by the Finance Act last year. To " bona fide commercial transactions " was added " including bona fide transactions in relation to the production, marketing and. sale of livestock and primary products:" The stipulation about maturing within 120 days after acquisition was made to read " maturing either within one hundred and twenty days after the date of the document, or not later than ninety days after sight." It was further provided that bills arising out of transactions in live stock and primary produce might be discounted if due to mature within six months after their acquisition by the bank. In actual fact, the Reserre Bank has done no discount business in its year of existence. In his address to shareholders at their annual meeting on June 7 the Governor, Mr. Leslie Lefaux, said:—" The discount rate is not of great significance pending the development of a bill market, but it serves to indicate the bank's views as to the level at which the general public should be able to obtain financial accommodation against first-class bills. Moreover, the bank would always tike eligible bills at its published rate from those with, whom it is prepared to do business. This rate should not, of course, be confused with the trading banks' overdraft rate, the latter normally being slightlv the higher."