WANGANUI CITY COUNCIL LOAN

Wanganui Chronicle, Volume 75, Issue 125, 30 May 1932, Page 6

WANGANUI CITY COUNCIL LOAN

r J I HE Wanganui City Council must consider itself a fortunate body in having negotiated a renewal of loans to the value of £121.400 at 6 per cent., issued at £96 10s, repayable in 1942. The rate is certainly a high one, but that cannot be helped, because the London market is not favourably disposed towards loans for small amounts. There are several reasons for this, the major reason being that the cost of issuing- a loan on the Loudon market does not decrease with the size of the loan, and underwriters find greater difficulty in placing small parcels of municipal stocks than they do larger parcels of State debentures. Misapprehension is also likely to arise in the minds of some because the bank rate is clown to 21 per cent. But it must always be remembered that, the bank rate in Enplan'd is a term which means something different there from what it means in New Zealand. In New Zealand the bank rate at five per cent, means that any of the first-class customers of a trading bank may obtain overdraft accommodation on paying that interest rate. In England it means that the Bank of England will lend to trading banks or approved houses only at that rate upon lirst-elass and absolutely liquidable securities. The borrowers from the Bank of England, therefore, have to add their own costs and profit to the bank rate, and then are enabled to use the money at short-term only because a change in the Bank of Ihiglaiid rate may make it, necessary to recall the loans made by the trading bank. The Bank of England rate, therefore, immediately affects the .short-term market only, the effect, on the long-term market, if indeed it takes place, being a deferred