INTEREST RATES RISE

Otago Daily Times, Issue 23044, 21 November 1936, Page 14

INTEREST RATES RISE

TENDENCY IN AUSTRALIA Interest rates in Australia continue to harden. Together with the announcement of the new Commonwealth loan, which will return an effective yield of £3 19s 4d per cent., compared with £3 17s 6d for the June loan, it is stated that within the last few weeks four of the large Australian life assurance offices have increased their minimum rate of interest on first mortgage from 4J per cent, to 5 per cent. Government borrowing has played an important part in causing rates to harden in the last two years, states the Melbourne Argus, discussing the present trend. Two years ago the Loan Council was able to obtain £15,000,000 at an effective rate of £3 0s 5d per cent, the lowest since federation; but for the loan which has iust been adranged the effective yield is £3 I9s 4d per cent., an increase of nearly 19s per cent, in the short period of two years. This rapid rise points to a most undesirable feature of the capital market, namely, the strong competition of the governments with private enterprise for the money available for investment. In the last six months there has been a steady demand for money for investment in first-class mortgage security. Until a month ago it was possible to obtain money from most life assurance offices which lend large sums on mortgage on first-class risks at 4J per cent. Only for exceptionally good city mortgages will/money now be made available at 4J per cent., and the general rate for good city, suburban, and rural properties, with a margin from 50 to 60 per cent., is 5 per cent. Continued activity in suburban building has induced a brisk demand for loans from building societies for housing purposes. There are also plenty of applications for loans on broad-acre risks, but mortgagees generally continue to show reluctance to advance money on this type of security. Buoyant conditions in trade and industry have set up a heavy demand for banking accommodation. Although the banks necessarily have had to exercise a little closer scrutiny upon applications for advances, the figures show that they have not pursued a policy of credit restriction. Money is dearer to-day than it was 12 months ago—the “favoured” bank' overdraft rate seems to be 5i per cent, although the bulk of the business is probably done at 5J per cent.—but the banks have not placed any restriction on the obtaining of credit for any legitimate business enterprise. There was little activity in the market for municipal loans in October. Good city municipalities are able to borrow money from £4 7s 6d to £4 10s per cent, and country municipalities from £4 10s to £4 15s per cent.