Reserve Bank of Australia Annual Report – 1974 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

(6 July 1973)

The Statutory Reserve Deposit (SRD) ratio of the major trading banks was increased by 1 per cent on 2 August and by a further 1 per cent on 28 August. Term and Farm Development Loan Funds of the major trading banks were replenished to the extent of about $103 million, about two-thirds of which was provided from banks' SRD accounts by a reduction of 0.6 percentage points in the SRD ratio in early August, and the balance by a transfer from banks' other assets which was completed by the end of September. The net effect of these changes on the SRD ratio was to increase it to 9.0 per cent of deposits on 28 August 1973.

(14 September 1973)

Trading bank interest rates were increased from 17 September. The maximum rate which banks could offer on fixed deposits rose by 1.5 percentage points to 8.0 per cent. The ceiling on rates payable by banks on certificates of deposit was removed and the maximum term of certificates of deposit extended from two years to four years. The maximum overdraft rate payable on loans drawn under limits of less than $50,000 rose by 1.75 percentage points to 9.5 per cent. Most other bank lending rates rose broadly to the same extent. Trading banks agreed not to increase by more than 1 per cent interest rates on loans for dwellings of moderate value occupied by a borrower who owned no other dwelling. Previous requests by the authorities to banks to offer concessional rates on several categories of loans, such as those to exporters and rural producers, were withdrawn in view of the buoyant state of the economy.

(28 September 1973)

New maximum interest rates for savings bank deposits and loans were to apply from 1 October. The maximum rate on deposit accounts was increased from 5 per cent to 7 per cent. On the lending side savings banks agreed to limit increases in interest rates on housing loans in the great majority of cases to 1 per cent. Similar arrangements were agreed with the permanent building societies. Maximum rates on other forms of savings bank lending were adjusted to levels applying to comparable loans by trading banks.

(12 June 1974)

The SRD ratio of the major trading banks was reduced from 9.0 per cent to 8.25 per cent with effect from 13 June. The reduction offset part of the heavy drain of funds being experienced by banks; no change from the stance of monetary policy then current was involved. It was foreshadowed that reversal of the SRD action might prove to be appropriate as the seasonal downswing in liquidity was replaced by an upswing.

(19 June 1974)

The SRD ratio was reduced from 8.25 per cent to 7.5 per cent with effect from 20 June. The terms of the release were similar to those of 13 June.

(8 July 1974)

Increased maximum interest rates for bank deposits and loans were to apply from 9 July 1974. The new maximum rate which trading banks could offer on fixed deposits was increased from 8 per cent to 10 per cent, while for loans drawn under limits of less than $50,000 the maximum overdraft rate chargeable was to rise from 9.5 per cent to 11.5 per cent. Other trading bank rates were adjusted accordingly. The maximum interest rate on savings banks' deposit accounts was increased from 7 per cent to 9 per cent. The maximum interest rate payable on savings bank loans of less than $50,000 was to rise from 9.5 per cent to 11.5 per cent. On no class of, or any individual, savings bank loan did the rate rise by more than 2 percentage points.

(8 July 1974)

Term and Farm Development Loan Funds of the major trading banks were to be replenished to the extent of $108.9 million. About two-thirds of this amount was provided from banks' SRD accounts by a reduction of 0.6 per cent in the SRD ratio (to 6.9 per cent) on 9 July 1974 and the balance by a transfer from banks' other assets to be completed by the end of August 1974.

(11 July 1974)

The SRD ratio was reduced from 6.9 per cent to 6.0 per cent with effect from 12 July. The terms of the release were similar to those applying to releases of 13 and 20 June.

(23 July 1974)

The SRD ratio was reduced from 6.0 per cent to 5.5 per cent with effect from 24 July. This action was a further partial offset to the drain on liquidity being experienced by the banks and not an easing of monetary policy.

Foreign Currency Arrangements

(9 September 1973)

New outer limits were set for banks' spot exchange transactions with the public in U.S. dollars. Banks' rates of exchange for other currencies were to reflect the change in the market rates for the U.S. dollar. Forward exchange covering facilities for traders remained available from banks.

(30 May 1974)

It was announced that a change in forward exchange arrangements would take effect from 17 June. As a general rule, to be eligible for forward cover, a trader would be required to make application to his bank within seven days of acquiring an exchange risk in respect of a particular transaction.