BANK RATE INCREASE

Sun (Auckland), Volume III, Issue 886, 1 February 1930, Page 12

BANK RATE INCREASE

NO NEED FOR PESSIMISM IMPORTS EXCESSIVE “This change could be seen coming some months ago,” said Mr. John Frater, vice-chairman of the Auckland Stock Exchange. “it is merely falling in to line with what has been done in Australia.” Mr. Frater said lie did not tliink there was any need for pessimism. Things were quite all right in New Zealand, but at the same time it was wise to take the necessary precautions in order to avoid getting into the same condition as prevailed in Australia. There was an impression among wool men that the next sales would see prices firm a bit, which would help to counteract any tendency toward a pessimistic outlook.” “There is such a close connection in the banking and economic conditions of Australia and New Zealand that the financial disturbances of Australia must also effect New Zealand to a certain extent,” said an Auckland sharebroker. “The change in the bank rate in New Zealand therefore does not come as a surprise to New Zealand.” He thought it advisable to regard it more in the nature of a precautionary warning, although there was no necessity for pessimism. “New Zealand is in a much more satisfactory position than Australia,” he said, “not only financially, but also in regard to industrial problems.” ENCOURAGE EXPORTS “The change has been virtually predicted in this month’s issue of the Auckland Chamber of Commerce Journal,” states Dr. E. P. Neale, secretary of the Auckland Chamber of Commerce. The article stated: “The volume of imports is now nearly as high as at the end of 1925, when a seriously adverse trade balance was ushered in, and sympathetically, the relation of bank deposits to advances is now similar to that prevailing at the end of 1925. Unless the present tendencies of these series are checked, there is danger of the London balances of our banks being seriously depleted. “It is to be hoped that the- position can be remedied by an adjustment of external exchange rates in a manner such as to encourage New Zealanders to export, and to discourage importations on their part.; but if, as seems probable, this expedient does not prove effective to maintain at a safe level the balances of the New Zealand hanks in London, the more drastic expedient of raising the New Zealand bank rate to check importations will probably have to be adopted as the only alternative to rationing of credit. It is better to take this step promptly if it is likely to become eventually necessary than to allow matters to drift too far, as was, in the opinion of many, done during the last period of depression in New Zealand.” IDLE GOLD Referring to the New Zealand Government’s policy in not returning to the gold standard, Dr. Neale states that it was in anticipation of a possible non-renewal of the Order-in-Council making bank notes legal tender that so much coin and bullion were held in the vaults of New Zealand banks. As a matter of fact, a gold reserve of £7,500,000 in a coun try with a note circulation of less than £6,500,000 was a piece of national extravagance. The idle funds in the hands of the banks could be shipped to London and employed there under present conditions to much better advantage than in New Zealand. Dr. Neale added that he saw no harm in using the bank rate, instead of London exchange rates, as the principal means of influencing the balance of trade.