THE BANK OF ENGLAND

Otago Daily Times, Issue 20638, 9 February 1929, Page 13

THE BANK OF ENGLAND

AN ADVANCE IN RATE. CONTINUOUS DRAIN OF GOLD. HEAVY EXPORTS TO AMERICA. (United Press Association.) (By Electric Telegraph—CopyrlgLu.) LONDON, February 7. The hank rate has been advanced to 5J per cent. This advance followed the net efflux during the week of £3,091,745 in gold, reducing the stock of gold in the Bank of England’s issue department to slightly below tbe £150,000,000 laid down by the Cunliffe Committee as the amount that should be Held on the amalgamation of note issues. It is understood that the Bank of England has advanced the rate to stop this heavy drain, and to prevent the situation getting out of hand. The Morning Post points out that during a period of a little over five months our loss of gold amounted to £2(5,500,000, and yet these huge exports had no material effect upon American exchanges.

INCREASE NOT UNEXPECTED. HANDS OF BANK FORCED. (British Official Wireless.; RUGBY, February 7. The raising of the bank rate from 4i per cent, to 5J per cent, was not altogether unexpected. Since last September, when the Bank of England’s stock of gold stood at the high record of £176,500,000, there has been a continuous drain of gold—first on account of Germany, apd recently for New York. Excessive speculation on the New York Stock Exchange has forced up the money- rates at that centre, and while they renfained considerably above these in London, the fear of gold withdrawals from here remained. There have been no indications of a slackening of speculative activity in America, despite attempts to check it, and the Bank of England is, therefore, obliged to protect itself.

The Bank of England directors also had to look ahead to the autumn months, when this country has to make heavy payments to America for grain, etc. The bank has, therefore, to replenish its gold reserve during the spring and summer months, and, although it was hoped that this might be accomplished with a 4i per cent, bank rate, it is evident that conditions abroad have forced the hands of the bank.

The bank rate has not been as high as .54 per cent, since 1921.

BRITISH PRESS COMMENT. LONDON, February 8. (Received Feb. 9, at 0.80 a.m.) The City editor of The Times states that the raising of the bank rate immediately had the desired effect. Exchange on New York rose to a level at which gold shipments became unprofitable; in other words, monetary equilibrium has been established. The raising of the rate could no longer be avoided without further trouble, as the gold would have continued flowing out and would probably have forced up the rate to 5 i per cent, later in the year. Postponement would have cost the bank £7,000,000 in gold, which equals 10 weeks’ inflow from South Africa, and eventual reduction in the rate would be delayed to the same extent.

The Daily News, in an editorial, raised the question of Treasury responsibility in acts like the raising of the bank rate, the effects of which were most unfortunate to industry. It says: “We do not believe that the present hole-and-corner system of regulating a vital national concern by a few experts will long be tolerated. The public will rightly demand that the Minister should take responsibility in explaining and defending the decisions.” The Financial News states that nobody can pretend that the increase is anything but an unfortunate necessity, but business men should not give its depressing effect undue psychological weight.

The Morning Post does not believe that the general run of business will be checked by the moderate rise in the price of money. The Daily Chronicle describes the increased bank rate as a crushing blow to industry. Nothing in the industrial situation warranted the rise, which was due solely to conditions in the United States, where money is earning so much more than it is in England that the American balances are being withdrawn from London.—Times Cable.