Thames Star.

Thames Star, Volume LXV, Issue 18240, 14 July 1931, Page 2

Thames Star.

“With malice towards none; with charity for all; with firmness in the right, as God gives us to see the right."—Lincoln.

TUESDAY, JULY 14, 1931. REDUCTION OF INTEREST

The movement in favour of a reduction of rates of interest in New Zealand will receive impetus through the appeal which the Government is making to all lending agencies to co-operate in bringing about a decrease of one-half per cent, in the charge upon all advances. The beneficial effect which a reduction in interest rates would have in stimulating industry in the Dominion and in giving relief to many industrial and agricultural enterprises has recently been emphasised in several quarters. The discussion of the question has necessarily, however, been somewhat guarded, for it is realised by responsible organisations than the adjustment of interest rates upon a lower level is a delicate matter. One of the factors that has militated in New Zealand,' against an agreement being more than tentatively suggested has been the return which the Government has been offering to investors in the internal loan maturirig'in 1937. The Government has apparently been prepared to accept all the money that is offering for this loan, and is paying per cent, upon it. When the very excellent security of a State loan is considered, this represents a high rate of interest, and so long as it is offered other potential borrowers either public or private, are unable to offer less with any expectation of finding investors. The message which announces the terms of the Government’s request to local bodies, banks, and all other lending agencies, says that “it is taken for granted that the Government departments lending money will fall into line in any reduction that may be generally agreed to,” but this statement is inconclusive. It is not only as lender but as borrower also that the Government must be expected to indicate by practical, means the manner in which a reduction of interest can be effected. The debt conversion agreement in Australia, which aims at securing a reduction by 15 per cent, in the returns to all bondholders upon their investments, indicates that in a case of emergency it is possible to secure co-operation in a movement of this nature. It is not without significance, also, as affecting the possible reduction of interests rates in this country, that the low returns that will be offered to investors in Australia will have the effect of keeping New Zealand investments in New Zealand, even if the rate of interest should be reduced. - When in the past comparatively low rates were ruling in the Dominion there was undoubtedly a drift to the Coimnonweath of money for investment, but there can be little fear of a recurrence of a disturbing movement of that nature at the present time. The good effect which a reduction in the cost of money would have on the industrial life of New Zealand is not open to doubt. Industry has had its activities seriously hampered by the difficulty of obtaining finance on attractive terms, and a reduction in the charge on money borrowed by farmers and other property owners would afford considerable relief. There is a further consideration, that if the offering of lower rates of interest curtailed the borrowing of the Government, and of local bodies, the effect would be to curb public expenditure, and this would ultimately be to the benefit of the taxpayer and the ratepayer. The first step in a movement of this nature must, however, come from the Government itself. This is not to suggest that legislation is required —indeed, compulsory measures would be distinctly mischievous —but that the Government cannot expect financial institutions to deal in money in terms less favourable than those which the State is itself prepared to pay for the use of funds. In this respect, while the invitation of the Government must be welcomed in principle, it is vague and unsatisfactory, and the hope may be expressed that it will be amplified to a point at which it definitely proves the willingness of the State to participate in a voluntary scheme for interest, reduction.