Reserve Bank of Australia Annual Report – 1976 Main Public Statements

Summarised below are the main public statements on policy matters issued by the Bank during the period under review.

Monetary and Banking Policy

(4 July 1975)

Steps were announced to reduce the free liquid assets of the major trading banks which were at an unusually high level. The SRD ratio was increased by 1 percentage point on 16 July and by a further 1 percentage point on 5 August. In addition, it had been agreed with the banks that they would prepay during the first half of July loans amounting to $112.5 million which had been made available to them under a special facility which was due to expire on 18 October 1975. These actions would require the major trading banks to pay to the Reserve Bank a total of about $385 million. Term and Farm Development Loan Funds of the major trading banks were to be replenished by about $82 million, of which about $55 million would come from a reduction of 0.4 percentage points in the SRD ratio on 17 July and the remainder from banks'other assets by the end of August. (The net effect of these changes on the SRD ratio was to increase it to 4.6 per cent of deposits on 5 August 1975.)

(5 September 1975)

The SRD ratio was increased from 4.6 per cent to 5.6 per cent with effect from 16 September.

(3 October 1975)

The SRD ratio was increased from 5.6 per cent to 6.6 per cent with effect from 5 November.

(7 January 1976)

The SRD ratio was increased from 6.6 per cent to 7.6 per cent with effect from 16 January.

(22 January 1976)

Steps were announced to reduce the “free” liquid assets of the major trading banks and to reduce the maximum rate of interest on “small” bank loans. The Reserve Bank and the major trading banks had made an arrangement that the agreed minimum ratio for purposes of the LGS convention would be temporarily increased from 18 per cent to 23 per cent from the beginning of February and would remain in effect as the minimum LGS for purposes of the convention until the end of March 1977; all other elements of the convention remained unchanged. This action immobilised major trading bank liquidity equivalent to 5 per cent of their deposits.

The maximum rate of interest chargeable by trading banks on “small” overdrafts was reduced from 11.5 per cent p.a. to 10.5 per cent p.a. from the beginning of February, and subject to a phasing-in process, the application of this maximum was extended from overdrafts drawn under limits of less than $50,000 to overdrafts drawn under limits of less than $100,000. The maximum interest rate chargeable on “small” savings bank loans was reduced from 11.5 per cent to 10.5 per cent effective from the beginning of February and its application was similarly extended to loans under$100,000. Banks could allow for any reductions in interest rates that they had made since July 1974 in determining movements in actual rates and also could moderate any reduction in rates charged on certain individual loans to an extent which would remove all or part of the concessions they had extended to some housing borrowers in September/October 1973.

Comparable adjustments were carried through to rates charged on term and farm development loans. The maximum interest rate on personal instalment loans was also reduced from 8.25 per cent (flat) to 7.75 per cent p.a. (flat) from the beginning of February.

(8 April 1976)

The SRD ratio was reduced from 7.6 per cent to 6.6 per cent with effect from 14 April and to 5.6 per cent with effect from 28 April. The reductions were part of a course of action aimed at easing the seasonal rundown in liquidity, which would be concentrated in April and May, when provisional and company tax payments to the Government would be heavy. During this period the Bank would use available instruments of management to keep bank liquidity sufficient to enable banks' lending to continue at about recent levels and to avert any undue tightening of financial markets in general.

(16 June 1976)

Term and Farm Development Loan Funds of the major trading banks were to be replenished by a total of $159 million of which about $92 million would come from a reduction of 0.6 percentage points in the SRD ratio (to 5.0 per cent) on 23 June and the balance (about $67 million) from banks' other assets by the end of August.