Reserve Bank of Australia Annual Report – 1975 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

(8 July 1974)

Maximum interest rates for bank deposits and loans were increased from 9 July 1974. The maximum rate which trading banks could offer on fixed deposits rose from 8 per cent to 10 per cent. For loans drawn under limits of less than $50,000 the maximum overdraft rate chargeable rose 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 rose from 9.5 per cent to 11.5 per cent. On no class of, or any individual, savings bank loan did the interest rate rise by more than 2 percentage points.

(8 July 1974)

Term and Farm Development Loan Funds of the major trading banks were replenished by a total of $108.9 million, about two-thirds of which was provided from banks' SRD accounts by a reduction of 0.6 percentage points in the SRD ratio (to 6.9 per cent) on 9 July 1974 and the balance by a transfer from banks' other assets which was 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. This action, like previous releases on 13 and 20 June, was intended to offset part of the continuing drain on liquidity being experienced by the banks; no relaxation of monetary policy was involved; and it was foreshadowed that reversal of the action might prove to be appropriate after the end of the seasonal down-swing in liquidity.

(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.

(27 August 1974)

The SRD ratio was reduced from 5.5 per cent to 5.0 per cent with effect from 29 August. The reduction was to provide some support to the liquidity position of banks and to assist banks in meeting essential needs of the economy for finance.

(23 September 1974)

The SRD ratio was reduced from 5.0 per cent to 4.0 per cent with effect from 25 September. This action was designed to contribute towards enabling banks to meet demands for finance while still adhering to a restrained lending policy.

(8 October 1974)

It was announced that steps were to be taken to add to the liquid assets of the major trading banks and that there was to be an increase in the rate of new lending by the banks. The SRD ratio was reduced from 4.0 per cent to 3.0 per cent with effect from 10 October and other transactions to effect further additions to the banks' liquidity were foreshadowed. While it was not intended to accommodate all demands arising from inflation, these moves were designed to enable banks to provide appreciably more finance by way of new lending towards meeting the immediate, basic needs of the economy for finance.

(22 October 1974)

In accordance with the statement on 8 October, arrangements to further add to the banks' liquidity through transactions other than SRD releases were announced. Under these arrangements an amount of about $112.5 million was provided to the major trading banks on 23 October through a special facility agreed by banks with the Reserve Bank, whereby funds amounting to 1 per cent of deposits were drawn by each of the banks by either loan or bill transactions. The facility was to run for 180 days, with an option available to the banks to extend it for a further 180 days.

(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 to be 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).

Foreign Currency Arrangements

(25 September 1974)

The Australian dollar was devalued by 12 per cent. The fixed link to the United States dollar was discontinued with the exchange rate for the Australian dollar from 25 September 1974 being determined by changes in an average of foreign currency values weighted in accordance with trading significance to Australia, in order to maintain a constant effective (trade-weighted) rate of exchange.

The Reserve Bank announced that, as a result of these changes, outer limits on rates of exchange for banks' T/T transactions with the public in United States dollars would be subject to alteration from day to day with rates being available daily from the banks. The Reserve Bank's price for gold in Australia was increased from $28.38 to $32.25 per fine ounce.