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.V -VISION OF I N T E R N A T I O N A L F I N A N C E BOARD O F G O V E R N O R * F E D E R A L R E S E R V E SYSTEM H. 13 May 8 , 1963. /CAPITAL MARKET DEVELOPMENTS ABROAD No. 105 LIBRARY, MAY 1 5 1963 I. II. III. J apan India Nine Charts on F i n a n c i a l Markets Abroad p.rrervx b a n k [oney and C a p i t a l Markets During the F i r s t Quarter o f 1963 A s u b s t a n t i a l i n f l o w of both s h o r t - and long-term c a p i t a l i n t o Japan helped t o produce a $22 m i l l i o n r i s e in o f f i c i a l r e s e r v e s i n t h e f i r s t quarter d e s p i t e a $139 m i l l i o n d e f i c i t on current account. Borrowings i n 1963 from t h e United S t a t e s have c o n s i s t e d c h i e f l y of $ 5 l m i l l i o n of new s e c u r i t y f l o t a t i o n s between January-March and $16 m i l l i o n in A p r i l . But s u b s t a n t i a l repayments on loans from U.S. commercial banks were s l i g h t l y l a r g e r than new i s s u e f l o t a t i o n s during t h e f i r s t quarter. (See Table 1 . ) In a d d i t i o n , Japanese r e s i d e n t s can acquire U.S. d o l l a r c r e d i t s through t h e E u r o - d o l l a r market and they may have done so i n t h e p e r i o d under r e v i e w . Table 1 . Japan: Short- and long-term Borrowings from United S t a t e s F i n a n c i a l I n s t i t u t i o n s (In m i l l i o n s of U.S. d o l l a r s ) Change during y e a r Bank l o a n s 2 / Securities 2/ Total 1/ y 3/ Change during quarter I960 1961 1962 1962 I II III IV 1+82 722 J8 780 20% 111 3U6 21+9 23 272 -20 36 16 -1+7 55 , 8 23 27 50 30 512 1963 I -562/ 51 - 5 Short-term l i a b i l i t i e s t o U.S. banks. New s e c u r i t y f l o t a t i o n s . January-February o n l y . I n t e r e s t r a t e s continued t o f a l l i n Japan. On A p r i l 20, 1963, t h e Bank of Japan lowered i t s b a s i c discount r a t e from 6 . 2 0 5 t o 5.81+ per c e n t , t h e f o u r t h reduct i o n s i n c e t h e t i g h t money p o l i c y was f i r s t eased on October 27. The r a t e has thus been lowered 1.1+6 percentage p o i n t s over t h i s p e r i o d , e a r l i e r r e d u c t i o n s occurring i n October and November o f l a s t year and March of t h i s y e a r . With t h e decreas e i n the discount r a t e , t h e g e n e r a l l e v e l of i n t e r e s t r a t e s has been d e c l i n i n g and c r e d i t has been expanding a t a f a s t e r r a t e than a year e a r l i e r . Money market c o n d i t i o n s eased during t h e f i r s t quarter and a l s o i n A p r i l . Stocks recovered from t h e i r low f o r the year l a s t October and r o s e 15 per cent during t h e f i r s t q u a r t e r . OFFICIAL USE ONIY DECONTROLLED AFTER SIX MONTHS I OFFICIAL USE ONLY -2- On A p r i l 22 t h e M i n i s t r y of Finance e s t a b l i s h e d new, wider exchange r a t e margins between t h e yen and t h e - d o l l a r . While t h i s move was made o s t e n s i b l y t o p l a c e J a p a n ' s exchange s y s t e m on a b a s i s s i m i l a r t o t h a t of the c o u n t r i e s adhering t o t h e European Monetary Agreements, i t w i l l a l s o g i v e Japan g r e a t e r f l e x i b i l i t y in i n f l u e n c i n g t h e t r e n d of t r a d e and c a p i t a l t r a n s a c t i o n s , The s e a s o n a l l y a d j u s t e d t r a d e d e f i c i t continued t o remain l a r g e i n March „ . . I n t e r n a t i o n a l r e s e r v e s r o s e $22 m i l l i o n during the quarter as net c a p i t a l r e c e i p t s more than o f f s e t the monthly d e f i c i t s on c u r r e n t account«, Money market, S u b s t a n t i a l bond purchases by t h e Bank of Japan and a l o w e r i n g of t h e bank's b a s i c d i s c o u n t r a t e on March 20 c o n t r i b u t e d t o a f u r t h e r e a s i n g of money market c o n d i t i o n s i n Mai*ch. A c o n t r a c t i o n a r y r i s e of ¥59 b i l l i o n i n bank n o t e s in c i r c u l a t i o n and n e t Treasury r e c e i p t s of ¥50 b i l l i o n were more than • o f f s e t by an i n c r e a s e of ¥32 and ¥287 b i l l i o n in Bank of Japan l o a n s and government bond h o l d i n g s , r e s p e c t i v e l y . During t h e f i r s t q u a r t e r money market c o n d i t i o n s g e n e r a l l y eased and on A p r i l 1 c a l l l o a n r a t e s reached t h e i r l o w e s t l e v e l s i n c e November 1956, With t h e f u r t h e r r e d u c t i o n in t h e Bank of Japan's b a s i c d i s c o u n t r a t e on A p r i l 20, money r a t e s are l i k e l y t o remain e a s y . Interest rates. Between October 1962 and January of t h i s y e a r , t h e average i n t e r e s t r a t e f o r l o a n s and d i s c o u n t s dropped from 8 , 2 h tc 8 , 0 0 p e r c e n t , (See Table 2 . ) This r e f l e c t e d p r i m a r i l y t h e r e d u c t i o n in the Bank of Japan's b a s i c d i s count r a t e l a s t October and November. With f u r t h e r c u t s in t h e r a t e in March and A p r i l of t h i s y e a r , t h e average i n t e r e s t r a t e i s l i k e l y t o d e c l i n e f u r t h e r . The f o u r t h cut i n t h e d i s c o u n t r a t e on A p r i l 20 s i n c e t h e t i g h t money p o l i c y was f i r s t . eased l a s t October reduced t h e r a t e by 1.U6 p e r c e n t a g e p o i n t s , Table 2 , Japan: 1 March June September December 1/ Average Monthly I n t e r e s t Rates on Bank Loans and D i s c o u n t s m i I960 1961 1962 1963 8.18 8.28 8.06 8.11 8.21 8.22 8.1k 8.08 7.92 7.88 8.00 8.20 8.22 8.23 8.2U 8,09 8.00^/ January. C a l l l o a n r a t e s e a s e d during t h e f i r s t q u a r t e r . From an average l e v e l o f 10.li.6 per cent i n t h e f o u r t h q u a r t e r , t h e r a t e f o r l o a n s repayable, a t a d a y ' s n o t i c e ( u n c o n d i t i o n a l ) f e l l t o 8 , 0 3 January, r o s e t o 8 . 3 9 i n February and dropped again t o 7 . 3 per cent' i n l a t e March. Rates are e x p e c t e d t o remain r e l a t i v e l y low during t h e second q u a r t e r . OFFICIAL USE ONLY- OFFICIAL USE ONLY" -3- Bank l o a n s and d i s c o u n t s . S i n c e November 1962, bank c r e d i t has expanded a t a. f a s t e r r a t e than a y e a r e a r l i e r . In January-February, t o t a l bank c r e d i t r o s e 3 . 8 p e r c e n t compared t o 0 , 8 p e r c e n t a y e a r e a r l i e r . Most of the r i s e i s a c c o u n t e d f o r by an i n c r e a s e i n bank l o a n s which r o s e 6 , 2 p e r c e n t during t h e p e r i o d , (See Table 3*) There were a l s o modest i n c r e a s e s i n h o l d i n g s of s e c u r i t i e s and d i s c o u n t e d bills. D e p o s i t s r o s e . ¥126 . b i l l i o n i n January-February i n c o n t r a s t w i t h a d e c l i n e of ¥319 b i l l i o n a y e a r e a r l i e r , Baik c r e d i t p r o b a b l y r e g i s t e r e d a f u r t h e r expansion in r e c e n t months i n v i e w of t h e c u t i n t h e Bank of Japan's b a s i c d i s c o u n t r a t e i n March and A p r i l , - The p r o p o r t i o n o f bank l o a n s and d i s c o u n t s extended for p u r c h a s e s of e q u i p ment averaged 16#8 p e r c e n t i n January-February, This r e p r e s e n t e d a d e c l i n e from t h e peak l e v e l of 1?*L p e r c e n t i n O c t o b e r ' o f l a s t y e a r . Table 3 . ~ Japan? - • — Q u a r t e r l y Changes i n D e p o s i t s & P r i n c i p a l A s s e t s of Commercial Banks (In b i l l i o n s of yen) MAIN Deposits Per cent Change Loans 1961 I II III IV +#2 +169 +359 +U30 5.7 1.8 3.8 h.3 1962 Jan.Feb. I II III IV -319 +128 + 61 +678 +920 +126 1963 Jan.Feb. Per cent Change Bills Discounted \ + 18 +133 +23 6 +220" A S S E T S Per cent Change Securities Per cent Change 1.8 k.9 7.3 7.2 +103 +10lt + L3 +122. 6.8 6.k 2.5 6,9 +326 +206 +216 +232 5.9 3.5 3.6 3.7 -3.1 +15U 3-1 - 20 -0.7 + 60 1.2 0.6 6.U 8,2 +256 +181 +223 +585 3.9 2.7 3.2 8.2 + Hi +108 +213 •+11*5 O.U 3.3 6.3 luO - 6h +258 + hi + 71 1.0 +U81 6.2 + 23 0.6 + 1U • 3.9 -3.U lh.l 2.0 3.3 0.6 Bond market. New i s s u e s o f bonds t o t a l e d ¥111; b i l l i o n i n February, about t h e same l e v e l a s i n January. While the January-February volume o f i s s u e s was h i g h e r t h a n i n t h e t h i r d q u a r t e r l a s t y e a r , i t was down somewhat from t h e f o u r t h quarter l e v e l . New i s s u e s of bank debentures and p u b l i c c o r p o r a t e bonds were a t s l i g h t l y lower l e v e l s i n January-Februaiy t h a n i n t h e f o u r t h q u a r t e r , but i n d u s t r i a l debentures were h i g h e r i n February t h a n i n t h e p r e v i o u s t h r e e months. The t o t a l volume o f new i s s u e s i n January and February was ¥229 b i l l i o n , or ¥28 b i l l i o n h i g h e r than i n t h e same p e r i o d a year e a r l i e r , OFFICIAL USE ONLY OFFICIAL USE ONLY -h- Average y i e l d s on bonds and debentures remained unchanged i n JanuaryFebruary from the 1962 l e v e l s e x c e p t f o r some Very s l i g h t f l u c t u a t i o n s i n y i e l d s on i n d u s t r i a l bonds. Stock market, In g e n e r a l , s t o c k p r i c e s r o s e during t h e f i r s t quarter and reached a new high f o r t h e y e a r on A p r i l 5 , 15 p e r cent above t h e l e v e l a t t h e end o f 1962. This l e v e l , however, was s t i l l 1 1 per c e n t below the postwar' h i g h on J u l y 1 8 , 1961. During t h e r e s t of A p r i l s t o c k s tended t o e a s e s l i g h t l y . (See Table It.) Table U. Japan: Dow Jones Average of 225 S t o c k s , F i r s t S e c t i o n of Tokyo Stock Exchange Jan. k 9 -.16 23 30Feb. 6 ¥1,U18 Feb. 1,1*21 i , m Mar. i,U5U l,t52 1,U95 - ^ 13 20 27 6 13 20 ¥1,1*97 l,U9U 1,1*90 1,511 1,522 i,55U ; ' Mar. 27 Apr. 3 10 17 2h May 1 ¥1,565 1,613 1,613 1,591 1,570 1,593 1961 High Low ¥1,830 ¥1,250 1962 High Low ¥1,631 ¥1,216 F o r e i g n t r a d e . The s e a s o n a l l y a d j u s t e d t r a d e d e f i c i t was down s l i g h t l y i n March compared t o February, but s t i l l .remained l a r g e . March e x p o r t s r o s e 5 per c e n t and imports 2 per c e n t . The s e a s o n a l l y a d j u s t e d t r a d e d e f i c i t at an annual r a t e was $972 m i l l i o n , i n t h e f i r s t q u a r t e r compared t o $156 m i l l i o n i n t h e t h i r d quarter o f l a s t y e a r and $6U8 m i l l i o n i n the f o u r t h q u a r t e r . S i n c e Japan can normally e x p e c t t o c o v e r w i t h i n v i s i b l e e a r n i n g s a t r a d e d e f i c i t of about $600 m i l l i o n a y e a r , t h e s e f i g u r e s i n d i c a t e t h a t t h e Japanese c u r r e n t account i n r e c e n t months has a g a i n moved i n t o d e f i c i t . The s e a s o n a l l y a d j u s t e d t r a d e f i g u r e s (monthly, or monthly a v e r a g e s , on a customs b a s i s i n m i l l i o n s o f d o l l a r s ) i n Table 5 are based on s e a s o n a l adjustment f a c t o r s computed by t h e Bank of Japan under t h e U.S. c e n s u s method. Table 5* Imports "Exports Trade b a l a n c e Japan: S e a s o n a l l y Adjusted Foreign Trade 1962 I II III IV 1*92 371 166 U09 khl h3h his U21 -121 -57 -13 -51i 1963 Jan. Feb. Mar, 187 L06 hlk U09 187 395 199 UlU -81 -65 -92 -85 I Exchange r e s e r v e s and c a p i t a l f l o w s . During t h e f i r s t q u a r t e r , Japanese i n t e r n a t i o n a l r e s e r v e s r o s e $22 m i l l i o n t o $ 1 , 8 6 3 m i l l i o n . In February t h e Bank o f Japan made t h e f i n a l repayment on t h e s p e c i a l $200 m i l l i o n c r e d i t arranged with t h r e e American banks i n November 1961. Japan a l s o r e p a i d i n February and March $33 m i l l i o n a g a i n s t a $125 m i l l i o n c r e d i t o b t a i n e d from seven American banks in February 1962$ Japan i s s c h e d u l e d t o r e p a y an a d d i t i o n a l $92 m i l l i o n a g a i n s t t h i s c r e d i t i n the A p r i l July period t h i s year. OFFICIAL USE ONLY OFFICIAL USE ONLY Tha_balance of payments, a s measured on an exchange t r a n s a c t i o n s b a s i s , r e g i s t e r e d a d e f i c i t on c u r r e n t account (not s e a s o n a l l y a d j u s t e d ) of $28 m i l l i o n i n March e With n e t l o n g - t e r m c a p i t a l r e c e i p t s of $25 m i l l i o n and n e t s h o r t - t e r m c a p i t a l ' . . r e c e i p t s o f $2U m i l l i o n , t h e o v e r a l l b a l a n c e of payments, i n c l u d i n g a n e t o u t f l o w o f ' $ l k m i l l i o n under t h e e r r o r s and o m i s s i o n s i t e m , showed a r i s e of $7 m i l l i o n in ..March. The c u r r e n t account was i n d e f i c i t during each month of t h e f i r s t q u a r t e r i n c o n t r a s t t o a r e g u l a r monthly s u r p l u s duHng the l a s t h a l f of 1962* However, a s u b s t a n t i a l n e t i n f l o w o f both s h o r t - t e r m and l o n g - t e r m c a p i t a l a s w e l l as a drawing down of n o n - o f f i c i a l s h o r t - t e r m a s s e t s more than o f f s e t t h e c u r r e n t account d e f i c i t s , r e s e r v e s r i s i n g $22 m i l l i o n during t h e period* On A p r i l 1 , 1963, Japan a b o l i s h e d the six-month w a i t i n g p e r i o d f o r f o r e i g n i n v e s t o r s d e s i r i n g to r e p a t r i a t e c a p i t a l i n v e s t e d i n Japanese s e c u r i t i e s . Further moves to l i b e r a l i z e t h e r e p a t r i a t i o n of d i r e c t f o r e i g n i n v e s t m e n t in Japanese e n t e r p r i s e s a r e b e i n g c o n s i d e r e d by t h e M i n i s t r y of F i n a n c e . Japanese s h o r t - t e r m l i a b i l i t i e s t o U6S« banks f e l l $56 m i l l i o n during t h e January-February p e r i o d , a c c o r d i n g t o p r e l i m i n a r y r e p o r t s . (See t a b l e below i n m i l l i o n s of U 0 S a dollars)«... Jan. Feb, 1959 168 175 1960 362 372 1961 875 952 1962 1 , 6 0 1 1,685 19631/1,690 f / l , 6 7 7 a/ Mar, 20k , h20 1,069 1,777 Apr, 22U 250 1,159 1,773 May 2U2 188 1,196 1,761 June 260 U97 1,272 1,757 July 256 586 1,310. 1,761 Aug. 269 628 1,335 1,766 Sept. 262 660 1,288 1,710 Oct. 262 693 1,281 1,709 Nov. 275 711 1,292 1,660 Dec. 32U 806 1,528 1,773 Preliminaryc NOTE: D a t a s i n c e December 1961 i n c l u d e r e p o r t s of c e r t a i n banks not p r e v i o u s l y i - e l u d e d . The i n c l u s i o n of t h e s e banks i n c r e a s e d the r e p o r t e d f i g u r e s i n December 1961 by $52 m i l l i o n . Japan f l o a t e d $ 5 1 m i l l i o n i n s e c u r i t i e s in t h e American market during the f i r s t q u a r t e r . Those c o n s i s t e d of a $ 2 2 , 5 m i l l i o n bond i s s u e by t h e Japan Development Bank, and two A,D„R, i s s u e s f o r $ 6 . 7 and $ 2 1 , 8 m i l l i o n by Nippon E l e c t r i c C o . , L t d . , and Kansai E l e c t r i c Power C o , , r e s p e c t i v e l y . Three o t h e r i s s u e s t o t a l i n g $ 1 6 . 9 m i l l i o n were a l s o o f f e r e d i n A p r i l , (See Table 6 . ) For the second t i m e s i n c e the end of the Second World War, the Japanese s u c c e s s f u l l y f l o a t e d i n March a $25 m i l l i o n , 1 5 - y e a r , 6 - 1 / 2 p e r c e n t bond i s s u e i n Germany, The i s s u e was made by t h e C i t y and P r e f e c t u r e o f Osaka and was guaranteed by t h e Japanese Government, An e a r l i e r i s s u e f o r t h e same amount was f l o a t e d i n Germany i n February 1962, OFFICIAL USE ONLY z Table 6 . 1/ Japanese S e c u r i t y F l o t a - i o n s i n the U,S ± Bond I s s u e s Date Issuer P u b l i c l y Placed Terms Amto 1957 Oct. Issuer Alaska Lumber and 1959 Feb. Gov0of Japan 3-15 y r s . Jan. Oct., Nippon Teleg 0 & Telep.. Pub, Corp „ 3-15 yrs > 5-6i '591 15 y r s . , 1% 10 y r s . s 7-1/2^ lh y r s . 9 7-1/2% "60 I I 7 2 . 0 30o0 U-0 '611 5-8 Mitsubishi. JO y r s . , (lhAmi c a 1 1 15 y r s , <6111105.3 '61IV 129 J .0 Tokyo Shibaura E l e c t . Cu. Kawasaki Steamship C o l Feb, Mar «, Nippon L i g h t Metal Co, Apr „ 15 yr s „ ; 7 1./2* 15 y r s l 17.,5 j.0 \ Price. $ 1 2 , 5 0 15 6 lyr loan 1 0 ""'6f I I I 8 9 1 ( Kokusai D e n s h i n Benwa Hitachi Ltd. 9,j 6? I 1 5 3 . 0 The Japan Fund 1Nippon G a i s h i ! K a i s h i , Ltd . \ Price &15.50 5yr06% o a n , ,0 Apr .. 3-5 l\ ,4 u Feb, Sept * Prices 3517.^0 7% A l a s k a Lumber and P u l p Sept. 81,8 V l 5 yrs . 2 0 * 0 196? Jan. Jap.DeveloBk... U2.0 20*0 Nov-„ • May, '57 IV 1 2 . 0 12.0 Sony C o r p . Japan DeveluBk, Cumulative Total Since Oct. 1957 P n l p Kobe S t e e l Works Kawasaki Steel Sumitomo Metals 1961 Jan., June 15 y r s . , Amt. 30.0 I 9 6 0 June May P r i v a t e l y Placed Terms American D e p o s i t o r y R e c e i p t Shares and Other Issuer Terms Ant. 13' y r s , 6 15 yrsu^ 6 1/2% 10.0 1.6.5 Table 6 . Japanese S e c u r i t y F l o t a t i o n s i n t h e U.S.2:/ (cont.) 0 Bond I s s u e s P u b l i c l y Placed .Date Issuer ^ 19.62 S e p t . S h i n Mitsubishi Heavy I n d u s . S e p t . Nippon T e l e g . & T e l e p .Rib. C o r p . D e c . Tokyo Shibaurat Elect.Co.Ltd. 1963 F e b . Japan D e v e l . Bank Terms Amt. 15 y r . 6-1/2% Conv.Deb. 15 y r s . , 6it l5yrs., 6-3/8% Conv.Deb. 15 y r s . , 6% 10.0 Mitsui & Company P r i v a t e l y Placed Terms Amt. Issuer Terms Amt. '62EI2UU.1 18.5 7 . 0 '62 I V 2 7 1 . 1 20.0 Honda Mtr. Co. P r i c e $16.75 22.5 Nippon E l e c . Co. L t d . Kansai E l e c . Power Co. Sony Corp. Price 6.7 $16.75 Price 21.8 '63 I 322.1 Price $17.25 5.2 M i t s u i & Co. Price $1U.00 1.2 Mar. Apr. Issuer Cumulative Total Since O c t . 1957 American D e p o s i t o r y R e c e i p t Shares and Other 15 y r s . , 1 0 . 0 6-3/8% Conv.Deb. Apr. ' 1/ Data i n c l u d e a f e w l o n g e r - t e r m bank l o a n s . NOTE: T h i s l i s t of s e c u r i t y f l o t a t i o n s i n t h e U n i t e d S t a t e s i s i n t e n d e d t o be c o m p l e t e , however, i t i s p o s s i b l e t h a t some borrowing h a s n o t b e e n i n c l u d e d due t o l a c k of i n f o r m a t i o n . j Foreign exchange, During t h e f i r s t q u a r t e r t h e exchange r a t e i n t h e s p o t market remained unchanged a t t h e o f f i c i a l support l e v e l , The yen weakened i n the forward market, however, and t h e d i s c o u n t on 3-month exchange r o s e from 0 , 7 8 per c e n t i n e a r l y January t o 2 , 2 8 p e r c e n t i n l a t e February and March, In the f i r s t h a l f of A p r i l t h e forward d i s c o u n t narrowed as t h e yen weakened s u b s t a n t i a l l y i n t h e s p o t market. (See Table 7 . ) Table 7» Japan: Customer's T, T, Exchange Rates of Bank of Tokyo i n Tokyo Yen-dollar spot middle rate Three-month forward middle rate Forward d i s c o u n t i n nnr c e n t per annum December 28 359.90 359.60 .78 January U 11 18 25 358,90 358.90 358,90 358,90 359.60 359.30 359.95 360.15 .78 1,00 1,17 1,73 February 8 22 358,90 358,90 360.A5 360.75 2.17 2.06 March 8 22 358.90 358.90 360,95 360.95 2,28 2.28 April 5 1? 15 359,80 359.70 360.20 361.05 361.05 361.05 1,39 i,5o .9h On A p r i l 22 t h e M i n i s t r y of Finance e s t a b l i s h e d new exchange r a t e margil between t h e yen and the d o l l a r . Spot exchange t r a n s a c t i o n s w i l l be a l l o w e d t o f l u c t u a t e w i t h i n 3 / U ' s o f 1 per c e n t above and below p a r i t y i n c o n t r a s t t o t h e e a r l i e r l i m i t s of 1 / 2 o f 1 p e r c e n t o f p a r i t y , The p r e v i o u s requirement t h a t t h e r a t e between the^-yen and the pound s t e r l i n g be maintained w i t h i n 1 , 5 per c e n t above or below p a r i t y was dropped on A p r i l 22. T h i s move not o n l y g i v e s Japan g r e a t e r f l e x i b i l i t y i n i n f l u e n c i n g t h e t r e n d o f t r a d e and c a p i t a l t r a n s a c t i o n s , but a l s o p l a c e s her exchange system on a b a s i s s i m i l a r t o t h a t o f t h e c o u n t r i e s adhering t o t h e European Monetary Agreement» II. India: Money and C a p i t a l Markets During t h e F i r s t Quarter of 1963 Higher i n t e r e s t r a t e s announced i n January were f o l l o w e d by proposed i n c r e a s e s i n t a x e s i n the 1963-61; budget introduced i n l a t e February as t h e Indian a u t h o r i t i e s continued t h e i r e f f o r t s t o r e s t r a i n domestic demand i r t h e p r i v a t e s e c t o r . New proposed t a x r e c e i p t s wero e q u i v a l e n t t o about 10% of p r o j e c t e d e x p e n d i t u r e s . However, the new e x c e s s p r o f i t s t a x t h a t was proposed by t h e M i n i s t e r of Finance c r e a t e d such adverse c r i t i c i s m from t h e b u s i n e s s community t h a t on A p r i l 16 he announced he would cut back t h e . b u r d e n of the new t a x e s by about 20 per c e n t . B u s i n e s s c i r c l e s were g e n e r a l l y d i s a p p o i n t e d w i t h t h e conc e s s i o n s , c l a i m i n g t h a t t h e y n e i t h e r met t h e i r demands or e x p e c t a t i o n s . E a r l i e r i n January t h e Reserve Bank r a i s e d i t s b a s i c d i s c o u n t r a t e from U t o Li? per c e n t and a l t e r e d the s t r u c t u r e of the d i s c o u n t r a t e s . Bank c r e d i t , however, c o n t i n u e d t o r i s e a t a f a s t e r r a t e during t h e f i r s t q u a r t e r than a y e a r e a r l i e r . A l a g i n d e p o s i t growth and measures taken d u r i n g t h e l a s t h a l f of 1962 t o l i m i t commercial bank borrowing from the Reserve Bank c o n t r i b u t e d t o t i g h t e r c o n d i t i o n s i n t h e c a l l money market and t h e i n t e r - b a n k r a t e i n c r e a s e d s u b s t a n t i a l l y during t h e q u a r t e r . Inauguration of the g o l d c o n t r o l r u l e s i n e a r l y January caused d i s o r g a n i z a t i o n i n the. g o l d market and r e g u l a r q u o t a t i o n s were suspended between mid-January and mid-March. P r i c e s quoted i n t h e l a s t p a r t of March were down 5 per c e n t from e a r l y January l e v e l s . Stock p r i c e s dropped about U per c e n t during t h e quarter and i n t e r n a t i o n a l r e s e r v e s i n c r e a s e d $ h l m i l l i o n during t h e quarter. Money market. The r a t e f o r d a y - t o - d a y c a l l money continued t o r i s e s h a r p l y during t h e f i r s t q u a r t e r . (See Table 1 . ) .The average l e v e l during t h i s p e r i o d was ^ . 6 2 per c e n t compared t o U.72 per c e n t i n the f i r s t quarter of 1 9 6 2 . ' While t h i s r i s e can be a t t r i b u t e d p a r t l y t o s e a s o n a l f a c t o r s , o t h e r developments have c o n t r i b u t e d t o an i n c r e a s e i n the r a t e . These i n c l u d e meas u r e s t a k e n during the l a s t h a l f of 1962 t o l i m i t commercial bank borrowing from the Reserve Bank and t o i n c r e a s e i t s c o s t , and a much s l o w e r r a t e of e x p a n s i o n of the a g g r e g a t e d e p o s i t s of the scheduled banks. As i n d i c a t e d i n Table It, d e p o s i t s r o s e only Rs. 17 m i l l i o n i n the f i r s t quarter as a g a i n s t a r i s e of R s . 915 m i l l i o n a y e a r e a r l i e r . OFFICIAL USE ONLY Table 1 . India: I n t e r - b a n k C a l l Money Rate i n Bombay ( i n p e r c e n t per annum) A v e r a g e of p e r i o d I II III IV a/ 15/ ii.72 3.59 2.72 3.75 1963 ^ 5.62a/ L.86 " 5.80 b / 6,20 V I Jan. Feb. Mar. Provisional; Average of F r i d a y s . . Gold m a r k e t . The g o l d market showed s i g n s of r e t u r n i n g t o a more o r d e r l y c o n d i t i o n i n March f o l l o w i n g d i s r u p t i o n i n January and F e b r u a r y as a r e s u l t of v a r i o u s governmental a c t i o n s . On January 10 t h e Government announced new r e g u l a t i o n s w h i c h r e q u i r e h o l d e r s o f g o l d of s p e c i f i e d t y p e and w e i g h t t o d e c l a r e t h e i r h o l d i n g s , l i c e n s e d d e a l e r s t o submit r e p o r t s on g o l d p u r c h a s e s , and m a n u f a c t u r e r s t o l i m i t t h e p u r i t y of g o l d ornaments t h e y p r o d u c e . One o f t h e Government's aims i s t o r e d u c e g o l d s n u g g l i n g i n t o t h e c o u n t r y . R e c e n t r e p o r t s i n Canadian newspapers have i n d i c a t e d t h a t Canada i s one of t h e s o u r c e s of t h i s g o l d . As a r e s u l t of t h e s e g o l d c o n t r o l r u l e s , t h e r e was a s u s p e n s i o n of t h e r e g u l a r g o l d p r i c e q u o t a t i o n s f r o m mid-January t o mid-ITarch. P r i c e s quoted i n t h e l a s t h a l f of March were down 5 per c e n t from t h e January l e v e l and 2k p e r c e n t from t h e r e c o r d h i g h l a s t A u g u s t . (See Table 2 ) . Table 2. India: P r i c e of Gold B u l l i o n i n Bombay ( i n d o l l a r s p e r f i n e ounce) a? Average of p e r i o d 1962 a/ TvC c/ ~&/ I II III IV 78.38 80.60 82.06 71.L1 1963 I Jan. Feb. Mar. 66.85 b/ 68.69 c/ 65.00 d/ Average s p o t q u o t a t i o n s , c o n v e r t e d i n t o d o l l a r s a t p a r v a l u e . Provisional. No q u o t a t i o n . Average o f F r i d a y s . OPFTCT ], ONLY S'foclc market. S t o c k p r i c e s " d e c r i n e d during t h e f i r s t q u a r t e r w i t h t h e — March a v e r a g e down ii p e r c e n t from, t h e December l e v e l , (See Table 3 ) , Factors c o n t r i b u t i n g t o t h e d e c l i n e i n c l u d e d t i g h t e r c r e d i t c o n d i t i o n s and a p r o s p e c t o f increased b u s i n e s s . t a x e s . " .... In. J a n u a r y t h e minimum p r i c e r e g u l a t i o n s s e t by t h e v a r i o u s s t o c k e x c h a n g e s were r e l a x e d and i n February t h e r e m a i n i n g f l o o r p r i c e r e s t r i c t i o n s on s t o c k s in--the—Bombay market were eliminated-,— S t o c k p r i c e s f e l l a g a i n i n t h e f i r s t week o f March i n r e a c t i o n t o t h e F i n a n c e M i n i s t e r ' s budget s p e e c h o f February 28 which c a l l e d f o r h i g h e r t a x e s , i n c l u d i n g an e x c e s s p r o f i t s tax= The exchange a u t h o r i t i e s s u b s e q u e n t l y r e i m p o s e d f l o o r p r i c e r e s t r i c t i o n s , but l a t e r r e l a x e d them* Table 3. India: P r i c e ^ r i d e x of Variable Dividend I n d u s t r i a l S e c u r i t i e s : A l l I n d i a ' " U 9 5 2 _ 3 3 = lop)— Average o f p e r i o d 1962 I II III IV 190.0 192.6 185.0 173.6 1963 I Jan, Feb, Mar, 167 o W 171.1 166.7 . 161.16/ Provisional. Banking d e v e l o p m e n t s . E f f e c t i v e January 3 , 1 9 6 3 , t h e R e s e r v e Bank o f I n d i a r a i s e d i t s b a s i c d i s c o u n t r a t e from L t o L& p e r c e n t , and i n a d d i t i o n a l t e r e d t h e s t r u c t u r e o f d i s c o u n t n o t e s • Each s c h e d u l e d bank i s now charged L& p e r c e n t f o r borrowing on amounts up t o $0 p e r c e n t o f i t s r e q u i r e d r e s e r v e s i n s t e a d o f t h e p r e v i o u s U p e r c e n t on t h e f i r s t 25> p e r c e n t and 5 p e r c e n t on t h e n e x t 25 p e r c e n t , A 6 p e r c e n t r a t e c o n t i n u e s i n e f f e c t a g a i n s t borrowing e q u i v a l e n t t o t h e r e m a i n i n g £ 0 per cent of the required reserve^ Under t h e new a r r a n g e m e n t , t h e r e i s no i n c r e a s e i n borrowing c o s t s i f a s c h e d u l e d bank borrows an amount e q u i v a l e n t t o a t l e a s t h a l f o f i t s r e q u i r e d r e s e r v e s and by mid-March most banks were r e p o r t e d t o have borrowed up t o 100 p e r c e n t o f t h e i r q u o t a s . One r e a s o n f o r t h i s change was t o - s i m p l i f y t h e s y s t e m o f t h e R e s e r v e Banks' l e n d i n g r a t e s . The i n c r e a s e i n t h e b a s i c d i s c o u n t r a t e f a i l e d t o s l o w t h e r a t e o f bank c r e d i t e x p a n s i o n . During t h e f i r s t q u a r t e r bank c r e d i t r o s e 11*8 p e r c e n t compared t o 1 0 , 3 p e r c e n t i n t h e same p e r i o d a y e a r e a r l i e r , T h i s e x p a n s i o n was f i n a n c e d l a r g e l y by a s a l e o f government s e c u r i t i e s and a r i s e i n borrowing from t h e R e s e r v e Bank, D e p o s i t s of t h e s c h e d u l e d banks r o s e o n l y s l i g h t l y i n t h e f i r s t q u a r t e r a s a g a i n s t a y e a r e a r l i e r , p a r t l y b e c a u s e t h e S t a t e Bank i s now t r a n s f e r r i n g PL I48O d e p o s i t s t o t h e R e s e r v e Bank a t t h e r a t e of Rs« 100 m i l l i o n p e r month. OFFICIAL USE ONLY • ?- OFFICIAL USE ONLY • T a b l e U. India: S c h e d u l e d Banks: Q u a r t e r l y Changes i n D e p o s i t s and P r i n c i p a l A s s e t s ( i n m i l l i o n s of r u p e e s ) " ~ MAIN A S S E T S P f r c e n t Bank Per c e n t Gov't, Per c e n t Cash and B a l a n c e D e p o s i t s f h a n g e C r e d i t Change S e c u r i t i e s Change w i t h R e s e r v e Bank 1962 Per c e n t Change ^ I II III. • IV +91$ +972 +219 - 5 +5.0 +5.1 +1.1 0.0 +131U + 97 - 381 + Ul8 +10.3 + 0.7 - 2.7 + 3.0 +217 +63 +827 ... -367 + 3.7 + 1,0 +13,6 - .-5o3 -321 +273 -262 + 73 -20.6 +22.1 -17cU +5.9 17 +0.1 +1671 +11.8 -U22 - 6»5 - 19 - 1.5 1963 . Bank c r e d i t expanded f a s t e r i n t h e f i r s t q u a r t e r than d e p o s i t l i a b i l i t i e s « On Marcir"29j t o t a l bank c r e d i t was e q u i v a l e n t t o 7 7 . 9 6 p i i * c e n t of a g g r e g a t e d e p o s i t s compared t o 69*82 per c e n t a t t h e b e g i n n i n g of the quarte-r and 73»U3 per c e n t a year e a r l i e r . The scheduled banks' cash and b a l a n c e s w i t h the Reserve Bank f e l l ! > $ per c e n t during t h e f i r s t quarter compared t o a d e c l i n e of 2 0 . 6 per c e n t a y e a r e a r l i e r . At t h e end of t h e q u a r t e r , such r e s e r v e s were e q u i v a l e n t t o 6 , 1 6 per c e n t of a g g r e g a t e d e p o s i t s , down from 6 c $ l per c e n t a t the end of 1962 and 6,hh per c e n t a year e a r l i e r . Exchange r e s e r v e s . India's international reserves f e l l s l i g h t l y in J a n u a r y , b u t r e c o v e r e d i n F e b r u a r y and March, r e g i s t e r i n g a n e t g a i n f o r t h e q u a r t e r of $Ul m i l l i o n . (See T a b l e .5)= T h i s r i s e i n r e s e r v e s f o l l o w e d a p e r i o d of r e l a t i v e s t a b i l i t y a t r e c o r d low l e v e l s „ T a b l e 5'. I n d i a : I n t e r n a t i o n a l Monetary R e s e r v e s ( j ^ n _ m i l l i o n s of d o l l a r s - l a s t F r i d a y of p e r i o d ) 1962 I II III IV 520 U52 ' UU5 b5l 1963 Jan; Feb „ Mar : , A s i a , A f r i c a and L a t i n American S e c t i o n , III. Nine C h a r t s on F i n a n c i a l M a r k e t s Abroad OFFICIAL USE ONLY W18 h72 L92 INTEREST ARBITRAGE, UNITED S T A T E S / C A N A D A T h u r t d o y (ig 3 - M O N T H T R E A S U R Y BILL RATES "Ml Vv\ : RATE D I F F E R E N T I A L A N D FORWARD CANADIAN DOLLAR F 0 8 W A I D RATI \ RATE D I F F E R E N T I A L WTTH F O R W A R D EXCHANGE COVER" NET I N C E N T I V E IN F A V O I OF C A N A D A • 0 1960 1961 1962 1963 TtJtTrest a u b i t r a o e , 3 - M O NTH TREASURY n e w BILL y o r k / i o n d o n RATES EURO DOLLAR RATEI RATE DIFFERENTIAL3_ND 3-MONT1- NEW YORK FORWARD STERLING S P R E A D IN F A V O R OF L O N D O N v - \ - XATE DIFFERENTIAL WITH J FORWARD RATE w FORWARD EXCHANGE COVES IN F A V O R OF L O N D O N IN F A V O R Of N E W YORK 1_UT INTEREST A R B I T R A G E FOR G E R M A N COMMERCIAL BANKS, Friday figure* Pi 3 - M O N T H TREASURY -EURO-DOLLAR BILLS, INTERBANK LENDING RATE A N D D E P O S I T RATES GERMAN INTERBANK 1 1 1 RATE DIFFER E N T I A t . A N D - i i - F O R W A R D RATE DISCOUNT ( - 1 INTERBA INK LOAN i 1 1 FO R W A RD D E U T S C H E M A R K SPREJ u i - 1 1X / 1 / ~ S v • ' v I J I I T R E A S U R Y BILLS u - 1 - v p 1 1 1 1 1 1 1 1 i > Vn ^ l r RATE D I F F E R E N T I A L W I T H F O R W A R D i r i i 1 i M M i l 1 1 1 1 EXCHANGE COVER IN FAVOR OF F R A N K F U R T ( + ) 0 1961 1962 1963 INTEREST A R B I T R A G E , Friday f i g u r e s 3 — M O N T H TREASURY FRANKFURT / BILLS A N D LONDON INTERBANK LENDING " L O A N RATE RATE D I F F E R E N T I A L A N D •' 3—MONTH RATES : FOR W A R D S T E R L I N G \\JERMAN TREASURVilUS 3 ' — r - - , / — GERMAN INTERBANK LOAN RATE RATE D I F F E R E N T I A L W I T H V FORWARD EXCHANGE COVER z Z l ^L_V- \/- M $ 1961 I— M 1962 1963 SHORT-TERM INTEREST RATES * /- I I I I I I I I I I I ll I ) I I I I 1 I I I I I I I I I I I 1 I I I I I I I I I I I I I I I I I I I I I I I I I 1 IIII1 IIIII 1 IIIIIIIIII 1959 I960 IIIIIIIIIII 1961 IIIIIIIIIII I I I I I I I I I I I IT 1963 "X* 3-month treosury bill roles (or oil countries e*cepl Jopon (3 monlh inierbonk deposit role") and Switzerland (3-monlh deposit rale) . "j" 3-monlh rale for U S dollar deposits in London LONG-TERM BOND YIELDS V-/ INDUSTRIAL STOCK INDICES* 1958=100 Ratio scale GERMANY • Nolo: Japan: traded on ihe \ Tokyo e»chongi 0-° SPOT E X C H A N G E RATES - M A J O R CURRENCIES A G A I N S T U.S. DOLLAR Per cen pgr Below par \_ / J 7 M A M J J A S 0 1961" H D J f M A M . J J 1962 A S 0 N v-' D J f M A M ) J 1963 A S 0 N , Ab ov D 3-MONTH Fridoy FORWARD EXCHANGE RAT£ figures AGAI NjST U . S . DOLLARS Per cent g»f. 5IM DISCOUNT - AGAINST POUND STERLING - LONDON AGAINST POUND STERLING - LONDON 1963
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