INTEREST RATES

Otago Daily Times, Issue 23885, 12 August 1939, Page 9

INTEREST RATES

BORROWING BY STATE RESERVE BANK CHARGES ANOMALOUS TRANSACTIONS Further details of the Government’s Treasury bill transactions during 193839, of which some particulars were in Budget papers, are revealed in the annual report of the Auditorgeneral, Mr J. H. Fowler. Until November 1, 1938, the report states, the interest payable by the Treasury to the Reserve Bank on Treasury bills was U per cent., but on that date the rate was increased to 2 per cent., and further increased to 4 per cent on November 22. The rate of interest chargeable by the Reserve Bank should be the main determining factor in fixing the rate payable on the loan transactions between the various separate accounts of the Government, but no corresponding increases are made in the rate charged on transactions of this nature which took place after November. As a result of this course being followed, anomalies have arisen, inasmuch as advances have been made at lower rates than those which the lending accounts have had to pay for their borrowings. Early in March, 1939, at the time when Ordinary Revenue Account was paying 4 per cent, to the Reserve Bank on moneys borrowed on the security of Treasury bills for revenue purposes, advances of £IOO,OOO each were made from that account to the Main Highways and Housing Accounts at 2 per cent. These advances were outstanding at the close of the year and have since been repaid from moneys borrowed from the Reserve Bank at 4 per cent. The Public Account Cash Balance Investment Account, which is composed of the cash balance of all accounts in the Public Account, in March, 1939, invested £1,000,000 in State Advances Corporation stock at 3J per cent., maturing on June 1, 1944. Each of these transactions amounts in effect to the granting of a subsidy from the lending account to the borrowing one, which is nowhere disclosed in the public accounts. Other transactions calling for comment were loans at 3 per cent, made to two local authorities in March, 1939, by the Housing Account at a time when the account was required to pay 4 per cent, for all new money raised from the Reserve Bank.