REDUCTION OF BANK RATE

Taranaki Daily News, 6 May 1930, Page 11

REDUCTION OF BANK RATE

EFFECT ON STOCK EXCHANGE CHANGE COMES AS SURPRISE. NEW ZEALAND MAY BENEFIT. By Telegraph—Prese Assn.—-Copyright. London, May 3. The reduction of the bank rate to 3 per cent, came as a surprise, for the position of the sterling exchanges did not justify the move, all the recent exchange movements having been against sterling. Consequently there was some divergence of opinion as to the cause which induced the bank to lower tihe rate. : In some quarters it is suggested that the reduction, coming as it did, practically simultaneously with similar movements in New York and Paris, was the result of a Central Bank operation, and pointed to" the preparation ,of the ground for the impending reparation bond issue. Another theory proposed is that the reduction was made to facilitate a big conversion here. The latter does not seem a very probable suggestion.

The financial editor of the Morning Post writes: “'We do not believe for, a moment that the present occasion could be described as a suitable, or even a possible, one for a large conversion operation, for the Budget has made far too profound an impression for that event to be possible on lines profitable to the Exchequer. Of course, there is always tire possibility of small conversion operations and of the Government dealing with the 4 per-cent, tax compounded loan, which can now be repaid at any time on a few months’ notice.”

| The immediate effect of the reduction j of the bank rate on the Stock Exchange i was a spectacular advance of almost all gilt-edged securities. The reduction, being regarded as an indication of the -prospect of a long period of cheap money, brought a number of buyers .of high-class securities into the market, and the dealers were apparently caught short. Unfortunately Dominion stocks were not in favour, for they showed little improvement. So far- activity has been confined to British funds, and most other markets are still depressed, industrials being especially dull.

The reduction of the bank rate came too late to affect cash applications for the Queensland loan, the list for which .closed on April 30, but it is expected to help the conversion, which closes on May 6, and a successful result of the issue is generally anticipated. The New Zealand new loan of £5,500.000, 5 per cent., at 95, which will be advertised to-morrow, will no doubt benefit from the reduction and is likely to go well. It is repayable in 1949, and yields the investor £5 Is 8d per cent. The existing New Zealand 5 per cents., redeemable in 1946, are quoted at just over £lO2, but the price includes four months’ interest.