THE RISE IN THE RATE OF INTEREST.

Otago Witness, Issue 2647, 7 December 1904, Page 15

THE RISE IN THE RATE OF INTEREST.

THE EFFECT OF THE GOVERNMENT POLICY. (Fbom Oub Own Correspondent.) WELLINGTON, November 27. •THe Ministerial morning journal has come out with an article -on colonial borrowing that, emanating from such a> source at the present juncture, may, well be pondered over by our traders and^ members of Parlia-. ment. The Times refers to what it terms "' the present *unto ward position of the local money market," and goes on to pat the Government on the back for its policy in the past, and then sounds a decided note of warning. The article points out that "an average of £1,422,000 per annum cannot bo drawn from the limited supply of the New Zealand money market for four consecutive years without producing an appreciable effect. At present money is dearer by i to 1 per cent, than it was four years ago, and is in but scanty supply at the increased rates. The local non-bank-ing financial institutions have very little money available, and there is a legitimate demand 'which cannot be met. This condition acts in restraint of house-building, while the demand for houses is as keen as ever, and lltus.. industrial activity is checked arid.' the employment of labour' restricted. Retail traders, of all classes -are also ooniplaining 'of the scarcity of money. During the past, session of Parliament the y Govern-.ment-tbok powei to raise further sums of £750,000. and £250,000, and it becomes a' ; question-, of j what will be the effect upon-.•our-jmpncy.^markeir'if .steps are takeni to, ■ raise t this ■■money locally? In considering this question we cannot do better than consult the latest banking returns of the colony, which we reviewed a few weeks back. In these we find that the banks hold deposits of the community, apart from ths Government account, to the- amount of £17,947,243, comprising fixed and free deposits, in nearly equal proportions. Mr Seddon has inferred that the amounts deposited at interest (nearly nine millions) ought to bo available to assist the finances of the colony. The returns show, however, that this money is already utilised in the service of ihe trading community, as the other side of the account exhibits advances to the bank's customers in discounts and open loans to the aggregate of £14,494,559. Add to fch's amount the value of the- coin reserves, (£3,802,866). and we get a total of £18,297,425, as against the £17,947,243 of deposits. If, therefore, these deposits were withdrawn to any serious extent the banks would apparently have to call in the advances they have made to the trading communit}*, to the manifest inconvenience and derangement of the trade- of the country. Beyond these amounts the returns show: Bank capital represented by landed -property 'to the extent of £403,700, and obh&r securities £617,266, and it may bo suggested that in addition to these amounts bank capital might bo brought in to make good any deficiency. For many years, however, local- deposits have in the main sufficed to meet local requirements, and existing conditions cannot be lightly disturbed without producing sevious complications and pressure." The Times goes on to refer to the decision of the Government to raise, the Savings Bank rate of interest, and says : "We fear that this step is calculated to accentuate the position, and will inevitably tend to raise the price of money »" wrani The building companies, whose

business has for some months been severely curtailed through the paucity of deposits, will almost; certainly advance their terms — in fact, we hear that the question is receiving their urgent attention, and if the banks follow s>uit the price of money will be advanced throughout the colon}-. In the present state of the market none of the institutions dealing with money can afford to see the stream diverted to their disadvantage, but must at once take steps for their own protection. In thus reviewing the situation we are forced to the conclusion that the local market is already suffering distinct inconvenie-nce owing 1 to the amount withdrawn from circulation by local borrowing within the colony. It may be iairly suggested, therefore, that the time has arrived when the Government should consider whether the. interests of the community would not be better promoted by raising necessary funds outside the colony, even at a higher rate of interest, rather than by furtheor depleting the fund available for the trade and commerce of the country." \ This, it must be remembered, is not an article emanating from the Opposition press, so the Colonial Treasurer wUI not be able to indulge in his usual criticism to the effect .-that it is written "to injure and prejudice the credit of the' colony." Careful inquiries that I have been making for some tirm» past enab'c me to confirm al] that the New Zealand Times asserts, and since tho article was written, following on the increase in rates on Post Office Savings Bank deposits, the building and investment societies have increased their rate, to 4£ per cent, on 12 months deposits. ' Other institutions will, no doubt, follow suit; and the representatives cf the banks at a meeting within the next week or so will also, no doubt, take the~position into their serious consideration. Authorities who have recently bern in London state- that Mr Seddon will have great difficulty in floating his loan there except at an 'unsatisfactory price, and it is clear that he cannot borrow the j money in the colony without seriously affect- , ing the local money market. Considering J these facts, with the recent decrease in ou<* i exports, the present rise in the price of wool comes at a very opportune moment.