INTEREST RATE DECLINING

Wanganui Chronicle, Volume LXXXIII, Issue 20103, 23 March 1928, Page 6

INTEREST RATE DECLINING

QUOTING the opinions of two recognised authorities that the tendency of interest rates is downward, the London Financial News says they summarise correctly the prospect at large which lies before the employment of capital. The prospect is that capital, speaking broadly, must bo prepared to accept, and will step by step accept, a lower return, though, owing to the compensating influences of the determining factors, the decline will be gradual and steady. The period roughly from 1814 to 1914 was taken to bringdown the average rate on money from sto 3 per cent. This fall was gradual because the stimulus it imparted to trade and industry immensely widened the demand for capital on the part of new countries, and an enormous total of British capital was diverted, not unprofitable into that employment. Bearingin mind that there was such an overseas demand to satisfy—and for decades the demand from the United States was in the forefront of it—the reduction in the average rate from 5 to 3 per cent, was an achievement altogether without parallel. The war threw back the average rate to 5 per cent., wiping out in four years the advancement of a century. At what pace and on what scale is the lost advancement likely again to be made good? It is a question of moment, because the weight and cost of publie debts, the life of industry and business, the level of real wages and living and the values of securities all turn upon it. Will it once more take 100 years to reduce the average—that-is the world rate—to 3 per cent ? An answer in the negative can be given for two reasons. The first is that instead of Great Britain being the main source for the accumulation of investable capital, the main source is now the United States, and it is a source more than three times as copious; the second is that the overseas demand for capital, so far as it has been fulfilled remains fulfilled—in the railways, roads, harbours and mines of newer countries, and other developments. It is not yet by any means satisfied, and it will be long beforee it is, and the reconstruction demand of Europe has been added to it. But the power and ability to accumulate investable capital are both more broadly based, and have been fortified by scientific industry and discovery. Instead, then, of 100 years, it is a cautious estimate that the average may come down to 3 per cent, in rather less than 20 years.