The Waimate Advertiser. Published every evenings since 1914 THURSDAY, FEBRUARY’ 28, 1929 MONEY RATES HARDER.

Waimate Daily Advertiser, Volume XXIV, 28 February 1929, Page 4

The Waimate Advertiser. Published every evenings since 1914 THURSDAY, FEBRUARY’ 28, 1929 MONEY RATES HARDER.

On Thursday, February 7, the Bank of England discount rate was laised from 44 per cent, to 54 per eent., and the incident has passed without any comment either from newspapers, bankers, or financiers, in fact not the least notice has been taken of the event. Apparently the raising of the bank rate is presumed to have nothing to do with us, and furthermore money is tending to become easier in the Dominion. Those who fancy that the

Bank of England rate has nothing t do with New Zealand are laboring ui der a great delusion. Money rates in

pinge on the every-day life of thneoplc. and all the intricate and numerous ramifications of trade and commerce, and even Stock Exchange speculation, as in the case of the

United States, are carried on more or

less with burrowed money. One has merely to examine a dozen or so bal-ance-sheets and it will be found that the great majority of the companies concerned are carrying overdrafts. Al!

our exports of primary products will feel the effects of this hardening of the money rates. Here, for instance, is a Bradford 'firm prepared to buy New Zealand wool, basing calculations on a bank rate oi 4| per cent. Now that same firm has to pay 1 per cent, more and obviously the firm must cut down or economise in some direction. Perhaps it buys less wool, or it reduces its price limit. It will be very surprising if the next wool sale in New Zealand does not show the direct effect of dearer money. As with wool, so with butter and cheese and frozen meat and the other products we export.' So that it will be realised that ian adverse movement in the London money market is felt everywhere, and New' Zealand is not immune. The Bank of England raised its rate from 4j per cent, to 54 per cent, and - it' would be t-hbught that raising the rate by 4 per cent, to 5 .per cent, would be sufficient. It is the custom of the Bank of England when it decides on raising the discount rate, it is moved up 1 per cent., and when the rate is lowered it is reduced by 4 per cent. That is the custom of the Bank ot England, and it is no doubt a : wise one. On Thursday, April 21, 1927, the bank rate was reduced from 5 per cent to 44 per cent., and this rate was in force until Thursday last, a period of over 21 months. At the time the rate was reduced the rediscount rate of the Federal Reserve Bank of New York stood at 34 per cent., but when speculation on the New York Stock Exchange became intense the Reserve Bank raised its rate by 4 per cent, on three occasions, bringing the rate to 5 per cent. This was effected on July 13 last year, and ever since then and until a week ago taor.ey was dearer in New York than in London so far as bank rates were concerned. In the Stock Exchange of New York there is what is technically known as call money—that is money lent for no fixed period and callable at any moment. Such loans are generally made for the day or overnight, ranged between 6 per cent, and 12 per cent, and time money—that is money lent for a period of 60 days—ruled at about 64 per cent, to 8 per cent. The high rate for call money attracted a good deal of money to New York from within the United States and from Europe, and the position was so good that (American banks called in their balances in Londcn and elsewhere in Europe, and this caused a strong demand for dollars. The exchange value of the £ sterling was again and again at the gold point, that is the point at which it becomes more profitable to ship gold rather than buy exchange. The United States and Germany both

made serious attacks on the gold reserve of the Bank of England, but the bank had accumulated a very large amount in the early autumn—the gold in the Issue Department early in September exceeded £173.900.(XX) —so that the bank could part with some of the yellow metal, more especially as £150,000,000 in gold was laid down by the Cunliffe Commission as the minimum that should be held by the bank when the Treasury currency notes passed under its control. Last week, i however, the reserve fell slightly below this level and up went the discount rate. Money is dearer in London than in New York, and the tendency will be for money to gravitate towards London. Money like water will find its own level. The exchange advanced immediately the bank acted, for on February 5 the rate was 4.84 25-32d01.. and three days later it went up to 4.85 11-16dol. The New York Stock Exchange has received a warning to deflate gradually, but this is not quite so easy. The swing of the pendulum will be as violent going back as it was going forward.