RATES OF INTEREST.

Waikato Times, Volume 112, Issue 18809, 3 December 1932, Page 7

RATES OF INTEREST.

FURTHER REDUCTION URGED. '

PROFESSOR BELSHAW’S OPINION

AUCKLAND, Saturday

Professor H. Belshaw and Messrs 11. R. Rodwell and L. Holt, of the Auckland University College School of Commerce, In a statement prepared before the announcement by the Associated Banks of reduced rales on fixed deposits, advocated lower interest rates. In a supplementary statement yesterday, Professor, Belshaw proposed a more substantial reduction, together with lower rates for overdrafts. The original statement pointed out that the policy of central banks in the main financial centres appeared to be directed to sustaining low short-term rales with a view encouraging “ reflation ” and renewed business activity. In spile of a reduction In overdraft rates from 7 per cent, to 6 per cent, during the past year, and also in deposit rates, bank interest rates In New Zealand were still higher than they were before the war, and higher than they were at present In Australia. By contrast with the pre-war situation, there appeared to bo nothing in the present situation to justify higher rales. Accumulation of Bavlngs. “ A substantial accumulation of savings during the past few years Is revealed by hanking figures, more especially by way of Interest-bearing deposits,” the statement continues. " Although the total of deposits in commercial banks is some £5,000,000 less in the September quarter, 1932, than in a similar period for 1929, fixed deposits are some £4,700,000 greater. Total deposits in commercial banks are about £2,000,000 greater than In 192 G, and nearly £5,000,000 greater than in 1927. Fixed deposits are £14,000,000 greater than in 1926, and have shown a steady increase during this period. Government deposits and deposits on current account have shown a tendency to decline. “ On the other hand, it ban scarcely be said that the encouragement of savings as fixed deposit is justified by increasing demands for capital for expanding business. In the absence of evidence to the contrary, we suggest that there Is a strong case for a substantial reduction in bank deposit rates, making possible a reduction in the oost cf borrowing. The problem at tho present time is not to encourage capital accumulation, but to encourage the more active use of resources. A reduction in deposit rates, by making fixed deposits less attractive, would provide some incentive to tho more active use of funds in business." To make a reduction effective, it would be necessary for the Government to lake action to reduce its own borrowing rates correspondingly and to reduce deposit rales of the Post Office and trustee savings banks, building societies and other institutions competing with the banks for funds. The Supplementary Statement. In ills supplementary statement yesterday, Professor Belshaw said the announcement by Die Associated Banks with regard to interest on llxed deposit brought the rates down to the level of those offered by the Bank of New Soutli Wales in Australia before the recent reductions there. It was in direct line with the recommendations in the first statement. " There is no mention in the announcement of any reduction in overdraft rates,” Professor Belshaw said. “ We feel that it is highly important that they should lie substantially rej (luned and our suggestion is that they !should bo reduced by at least 1 per | cent. “ it is possible that the reductions announced may not permit of a reducI lion of I per cent, in overdraft rates, but we feel that if this is the ease, deposit rates should he brought <Br,vn further, so that 1 he reductions in aver, draft rales recommended may he practicable at the earliest possible me-neiil. A reduction of maximum overdraft rales even to 2 per renl. could scarcely be regarded as a revolutionary proposal. "Wc a I tael) great importance to supplementary action lo avoid undue deph’lion of bank deposits by (lie transference of funds lo competitive institutions. Unless this is done, the ability of the banks to sustain low money rates and abundant credit will be imoaired.”