XN000022-1980-03-06 — Page 2

THURSDAY, MARCH 6, 1980

MONEY SUPPLY AND FINANCIAL STATISTICS FOR JANUARY

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THE MONEY SUPPLY AND FINANCIAL STATISTICS FOR JANUARY 1980 WERE PUBLISHED TODAY.

THEY SHOW SHARP RISES DURING THE MONTH IN THE MONEY SUPPLY AND IN TOTAL CREDIT TO THE ECONOMY- BUT THESE RISES PROBABLY REFLECT SPECIAL SEASONAL AND OTHER FACTORS MORE THAN ANY UNDERLYING EXPANSION.

FIRST, THERE IS ALWAYS A SUBSTANTIAL DEMAND FOR CREDIT IN THE WEEKS BEFORE LUNAR NEW YEAR, FOR SUCH ITEMS AS THE SETTLEMENT OF OUTSTANDING ACCOUNTS AND THE PAYMENT OF ANNUAL BONUSES.

A SECOND SEASONAL FACTOR IS THE INCIDENCE IN THE FIRST QUARTER OF PAYMENTS OF PROFITS TAX AND SALARIES TAX: THERE IS LIKELY TO HAVE BEEN SOME DEMAND FOR CREDIT IN JANUARY TO ENABLE TAXPAYERS TO MAKE THOSE PAYMENTS.

THERE WAS ALSO, IN JANUARY THIS YEAR, A SMALL AMOUNT OF BORROWING FROM BANKS AND DEPOSIT-TAKING COMPANIES BY PURCHASERS OF THE FIRST FLATS TO BE OCCUPIED IN THE GOVERNMENT'S HOME OWNERSHIP SCHEME.

ANOTHER VERY IMPORTANT FACTOR IN JANUARY WAS A SUBSTANTIAL VOLUME OF +ROUND-TRIPPING+, CAUSED BY THE VERY HIGH MONEY MARKET RATES IN THE PERIOD LEADING UP TO LUNAR NEW YEAR. ROUND-TRIPPING IS A FORM OF INTEREST RATE ARBITRAGE, WHICH INVOLVES A CUSTOMER DRAWING DOWN AN OVERDRAFT FACILITY OR A LINE OF CREDIT WITH A BANK OR DEPOSIT-TAKING COMPANY, ON WHICH INTEREST IS CHARGED AT PRIME RATE, OR A RATE LINKED TO PRIME RATE THE SUM BORROWED IS THEN DEPOSITED, NORMALLY WITH A DEPOSIT-TAKING COMPANY, AT A HIGHER MARKET RATE OF INTEREST.

MONEY SUPPLY

THE MONEY SUPPLY ON THE NARROWEST DEFINITION (M1) (NOTES AND COINS WITH THE PUBLIC, PLUS DEMAND DEPOSITS, OTHER THAN FROM BANKS AND DEPOSIT-TAKING COMPANIES (DTCS), WITH LICENSED BANKS) ROSE BY 1.8 PER CENT IN JANUARY, WELL DOWN FROM THE DECEMBER INCREASE OF 4.1 PER CENT. THOUGH THE VOLUME OF NOTES IN ISSUE ROSE IN JANUARY, WITH THE LUNAR NEW YEAR NOT UNTIL MID-FEBRUARY MOST OF THOSE NOTES WERE STILL IN BANKS TILLS AT THE END OF JANUARY.

M2 WHICH IS DEFINED AS M1 PLUS SAVINGS AND TIME DEPOSITS (OTHER THAN FROM BANKS AND DTCS) WITH LICENSED BANKS, ROSE IN JANUARY BY 2.9 PER CENT, SLIGHTLY DOWN FROM THE DECEMBER INCREASE OF 3.2 PER CENT. TOTAL DEPOSITS WITH BANKS ROSE BY 3.1 PER CENT IN THE MONTH.

M3, WHICH CONSISTS OF M2 PLUS PUBLIC DEPOSITS WITH DEPOSIT- TAKING COMPANIES, ROSE IN JANUARY BY 5.3 PER CENT, COMPARED WITH A 4.1 PER CENT INCREASE IN DECEMBER, THE JANUARY FIGURE REFLECTS A RISE OF 12.7 PER CENT IN DEPOSITS WITH DTCS, CAUSED TO A LARGE EXTENT BY THE ROUND-TRIPPING DURING THE MONTH.

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