DISCOUNT RATE INCREASED

Otago Daily Times, Issue 23692, 27 December 1938, Page 5

DISCOUNT RATE INCREASED

RESERVE BANK'S ACTION COMMENT IN LONDON (From Our Own Correspondent) (By Air Mail) LONDON, Nov. 24. "The Reserve Bank of New Zealand recently increased its official discount rate-from 2to 4 per cent. The movement has attracted no attention whatsoever, perhaps for the reason that it has in no way influenced the rates charged by the trading banks in New Zealand," said the city editor of the News Chronicle on November 23. "The Reserve Bank in that country tends to operate in a vacuum since there is no money, market, no bill or security market in which open market operations can be effected, and since the trading banks do not rediscount bills with the Reserve Bank. The official rediscount rate is therefore somewhat a museum exhibit. "Its substantial increase nevertheless possesses a significance of its own It has been effected in response to the substantial decline which has taken place in New Zealand's London funds and is. a signal—however ineffective for the time being—that in order to remedy this situation credit should be contracted in New Zealand in the normal and orthodox manner. It will be interesting to see whether that signal is to be followed by more effective measures." "MORE INTEREST THAN SURPRISE "

" More interest than surprise was expressed in financial circles at the action of the New Zealand Reserve Bank in raising its discount rate," the Daily Telegraph said. "In the city there was little doubt that the movement was designed to curtail the expansion of credit in New Zealand, which has been proceeding very rapidly. The atmosphere of prosperity is understood to have given too great an impetus to the import trade of the country, while banking advances have risen considerably and sterling balances in this country are understood to have been reduced. "Whether, in view of the limited character of the New Zealand money market, even this important change in the official discount rate will have any quick effect upon the situation • remains to be seen. Undoubtedly, attention will be given here to the significance of the action of the bank, and there will be some speculation as to whether the effects of the policy adopted will occasion some restriction of New Zealand's imports." The Evening Standard's comment was:—

"The New Zealand situation is a natural consequence of the plans of the Government in that country in the past year or two, and there does not at the moment seem to be any indication of an improved tendency. It is evident, however, that while the Government is inexperienced in economic affairs, it is anxious to see that the position is not undermined, and the decision to raise the rate rather than depreciate the currency is a good sign." „___