Evening star., 1930-06-21
RATE REDUCTIONS
SHOULD AID BONDS
Government and Municipal
Issues Seen as Chief Bene-
ficiarieS of Easy Credit.
BY CHARLES F. SPEARE.

NEW YORK, June 21.-Both the
stock market and the market for high
grade trade corporation bonds and notes,
as we'll as that for Government and
municipal securities, should be stimu-
lated by the reduction in the rediscount
rate of the Federal Reserve Bank of
New York to az per cent. the lowest
since the Federal Reserve system came
into being.
This rate parallels that of the Bank
of France, rejecting the great abund-
ance Of short term funds in the two
markets Of largest money supply in the
world. In response to the cut here
Thursday, the Bank of Germany di-
rectors lowered their rate from Az to
per cent, so that the official rate in
Germany is now 112 per cent under
that quoted In Austria, Hungary, Italy
and Spain, and y per cent below that
in Norway. 1t is on a parity with the
rate in Denmark, but y per cent
higher than in Sweden. The Bank of
England rate this week remained at
per cent. Only few days ago a lead
ing British economist stated that 1t was
at the minimum required by invest
ment markets and for its effect on
British trade.
Other Changes.
The Federal Reserve banks through
out the country have been slow to fol-
low the lead of the New York bank
since it reduced it's rate from 3h per
cent to 3 per cent on May 2. The only
two institutions to adjust their rates
10 he
Boston, whose rate was lowered to 3la
per cent on May 8, and Cleveland with
a similar cut two weeks ago. All of
the other Reserve banks are still quot
ing per cent.
With the New York rate at az per
cent, there is some possibility that
Chicago will reduce the spread of "a
per cent between the two money
markets. although the banking senti-
ment outside of New York is to the
effect that 312 or per cent rediS-
counts about represent the minimum
rates necessary for interior cities
The collateral effects of the reduc-
ton here. which is a natural response
to the open money market rates that
had declined 81 Of l per cent below the
official rate, include a possible reduc-
ton in the rates on deposits of the New
York Clearing House banks and a
further shift from the present unprofit-
able call money market to short and
long time securities. With the re-
newal rate of 2l2 per cent today, the
net return to the bank lending its
surplus funds in the Street" through
correspondent is less than 2 per cent.
In other words, the lender in most
cases Is paying more to hold his de-
posit than he is receiving on the funds
which he re-lends at current street
quotations. The logic of this situation
in ordinary times is that he would be
driven to purchase securities or COM
mercial paper.
Stimulus to Credit.
1t was admitted that the Federal
Reserve Board, through its policy of
low rediscount rates, and particularly
IN fixing in New York the lowest rate
ever quoted in the Is years of its opera
tions, had done all that it could do to
bolster up the bond market and to
transfuse easy credits into the business
world. The effect of this latest adjust
ment in rediscount rates on the market
for investment securities will be
watched closely, as many bankers
seem to feel that a stronger bond
market is necessary to bring about a
turn in the industrial tide. This opinion
Is not, however, a unanimous one, due
to the fact that with all of the en-
couragement provided this year in low
interest rates and high income returns
the volume of investment buying so far
has been discouragingly small.
The Federal Reserve statement this
week indicates holdings of United
States Government securities approx
mating 00000,000. This compares
with about S140.OO0,000 a year ago. At
the same time, total bills rediscounted
are back to nearly the previous low
figure Of the year with New York banks
one-tenth of the amount of June 10
1929. There have been few periods in
the life of the Federal Reserve banks
when there was less call on them for
accommodations from member institu-
tionS than at present.
(COpyrioht.