Winnipeg Free Press

Winnipeg Free Press (Newspaper) - June 26, 1981, Winnipeg, Manitoba Winnipeg free press Friday june pages 13-20 executives big on growth in latest prices from Toronto and business Money costs on the Way Down say analysts interest rates Are Likely on their Way Down. The senior economic adviser for the Bank of Nova Scotia said Canadian Banks could drop their prime lending rate to 16 per cent in three months a prediction endorsed by local analysts. Forrest Rogers said the . Prime will fall to is or 16 per cent in the next three months based on the Reagan administration conservative policies and the Tough monetary policy of the Federal Reserve Board. Canadian policy has kept the Bank of Canada rate pegged to the . Rate to keep investment Money Here and protect the Canadian Dollar. The Bank of Canada rate nudged up to 19.08 per cent from 19.07 per cent yesterday. Hugh Benham partner in c Harge of research at Richardson securities said he agreed with Rogers prediction. That s the scenario we be been paint Benham said. And Benham said we would Hope and expect the interest rates would reach the is or 16 per cent Range and stabilize at that level for not less than six months. We would t look for a there will Likely be slow economic activity in the third and fourth quarters of this year but the lower interest rates predicted will be a stimulus to increased economic activity Benham said. Tough monetary policy economic activity should have picked a in the second and third quarters of 1982, aided by the lowered interest rates he added. The rates will Rise then but More gradually and he Hopes they won t University of Manitoba economics professor Norman Cameron said the Tough . Monetary policy should have the opposite effect in the Short run but when added to Reagan economic policy Many believe inflationary pressures will be reduced and More than offset the expected interest rate Rise caused by the monetary policy. "1 Don t subscribe to that Cameron said. Reagan s fiscal policy is quite expansionary on balance Cameron said much like the Canadian government s. A number of . Firms Are already gearing up for a predicted defence build up and the spending it generates. Cameron said a number of people Are predicting a Short term drop in interest rates but Are hedging their bets by saying the rates will Drift up by year end. He said that both the Bank of Canada and the Federal Reserve Board in the . Have to control the rate of growth of Money currency outside Banks and demand the Bank of Canada says the demand for Money will grow at about 15 per cent annually four per cent natural growth and about 11 per cent for inflation but the Bank has set a target of four to eight per cent said Cameron. Interest rates must Rise to increase the Opportunity Cost of keeping those reserves. Cameron said he can t see Bank of Canada governor Gerald Bouey or his american counterpart allowing the Money Supply to grow by is per cent a year. Go with Central Bank of the options available for limiting the Money Supply raising interest rates reducing real growth to Zero and stopping inflation raising the interest rates seems to be the Only practical one Cameron said. While Cameron admits the Long term Bond Market indicates rates will be in the 15 to 16 per cent Range he does t feel those people Are looking at the Bank of Canada if he had to chose Between the Bank of Canada and the Long term Market right now i d still go with the Bank of he said. Rees Jones Manitoba chairman of the investment dealers association of Canada said there is a Good possibility the rates will drop to 16 per cent. He said it seems rates have come close to a top and there is a greater possibility of their dropping to 16 per cent than rising to 23 or 24 per cent. Some . Banks Are prepared to go a Little lower he said but rates probably won t get much lower than 16 per cent before the end of the year. The rates seem to be stuck in the 16 to 20-per-cent Range he added. Jones said the prediction that Canad an rates will drop to 16 per cent seems logical if the Bank of Canada is trying to keep a reasonable spread Between Canadian and . Rates but he is not sure the Reagan administration will be successful in lowering rates. In the past couple of years the inter est rates fell suddenly then Rose again. They either seem to come crashing High Bank rate Corners Ottawa Down or soaring Jones said. But what will happen this time i Don t think even the economists can agree the bulk of the Bank of Canada action has been in defense of the Dollar a local analyst said so Canadian inter est rates would Likely drop to match any decreases in the . Rates. He said the two or three month estimate is probably a Good guess and interest rates should be Down to about per cent. He added that the . Federal re serve Bank won t Back off its Tough policy because it appears to be work ing. The Long term Bond Market has bean relatively unimpressive in the past six to nine months said the analyst who asked not to be named. Any changes in rates will be in the Short term he said which could move two or three percent age Points without affecting the Long term rates. Gerry free press by Chris Smith interest rates May come Down a Little in the next few months but not very a senior Bank of Montreal official said yesterday. And even if the rates do drop i m not sure How Long they la stay said Grant Reuber Deputy chairman and Deputy chief executive officer. With inflation still at the 13 per cent Range it s difficult to see much improvement on the interest rate Reuber told a Winnipeg press Confer ence. He agreed there is always room for improvement in government actions affecting interest rates and added that finance minister Alan Maceachen would be the first to admit that. Reuber said the government faces pressures from abroad mainly the United states and must protect the value of the Canadian Dollar and there is Little room to move in the budget because of the size of the Federal Defi Cit. Right policy difficult it s a very tight Box to be in and it s not obvious what Maceachen should Reuber told reporters. He added that everyone has Good ideas but finding the right policy that is politically palatable to the general Public is difficult because some Mem Bers of the Public will invariably face temporary pain in the fight to stall the rising inflation and interest rates. De regulation a tighter budget and tighter monetary and spending policies would help fight inflation he said but How do you do it with reasonable Politi Cal it would be Nice if the world were a simple place and a single economic plan could solve the problems he said but economic policies Are trying to achieve a number of things at once fall Short on a variety of object the inflation rate in the . Has been lowering in the past few months Reuber said but that has not established itself As a trend yet and it May just be a Blip in the curve. In Canada we have particular difficulties such As an expected increase in Energy costs which will raise the consumer Price Index the economic indicator most often used to measure Cost of living increases. A decline in the Exchange rate of the Canadian Dollar in the past few months will also put upward pressure on Price Levels Reuber said. It s very difficult to predict what will happen to inflation and interest rates he added. Upbeat note on a More upbeat note Reuber and other Bank officials unveiled the Model of the Bank s million office Tower to be built adjacent to the historical main Branch at the Corner of Portage and main. Reuber described the project As vis Able evidence of the Bank s continuing and expanding commitment to Winni Peg and he described Portage and main As a Crossroads for the country and not just for Winnipeg and said we re very pleased to add to that in a Way that complements the existing building. The new office Tower which will House divisional Headquarters now in a separate building on Portage will con Tain about so. It. Of floor area on 25 floors and be 320 feet High. It has been designed to complement the historic nature of the main Branch building and the two buildings will connect through the grand banking Hall of the main Branch. The Bank will use about 30 per cent of the floor space said Ernie Smith of Smith Carter partners Archit tests for project. Smith said about to so. It. Per floor will be rented out land the Small floor size will work quite i Well i the Winnipeg a Market. He said the foundation will be ten dered first to Speed up construction which is expected to Start this fall and be completed by the Spring of 1983. The superstructure will be tendered about a month after the foundation. The Bank considers Manitoba an area of Good potential he said partly be cause it remains a Rich agricultural area and no matter what happens to the Economy people will need food. I Don t see any reason for pessimism for this Reuber added because of significant manufacturing activity and the Prospect of major projects such As the Alcan smelter near Winnipeg Potash development near St. Lazare and a Western Power Grid to sell Manitoba Hydro electric Power to Saskatchewan and Alberta. Al Bates senior vice president of the Bank s Manitoba Saskatchewan Divi Sion said the Manitoba Economy is the fourth Best right now trailing Only the Energy Rich provinces to the West of Here. Our experience with the farm bus Ness has been very very Good Over the he said. Reuber said there is no reason to doubt High interest rates have caused business closures and we d be de lighted to see the rates go Down but we Don t set the he said the High interest rates them selves Are not the reason for increased Bank profits which have made the headlines recently. The Bank profits he said Are based on the spread Between the rate the Banks pay depositors for the use of their Money and the rate of interest they collect on Loans. He said the Banks want the rates Down As Well because High interest rates Are a reflection of High inflation Ary pressures in the country and that inflation has increased the risks of lending because it has adversely affected the balance sheets of Many companies. The High rates have made the Market for Long term Money inaccessible to Many borrowers who must then go for Short term Loans. It is that increased volume of business that has added to the growth of Bank profits he said and not the High rates As such. The Banks have been very pressed to acquire equity to maintain the equity asset ratio of 3.4 to he said. He told a questioner that accepting lower profits would Cut into that equity base and hamper the Bank s growth. Ads explain profits the High profits and stories about them have Hurt the Banks image with the general Public and the Bank of Montreal has run ads to explain those profits. It s easy to hate a Bank i Reuber said of the Public reaction. If Banks could think of what to do to become More loved in the Community they would certainly do it he said but the Best they can do is present the facts. You can try to explain As clearly As you can exactly what is happening and Why you re doing what you re he said. Grant Reuber stands beside a Model of the new Bank of Montreal Tower planned Here. Bates farm stability. He said food and Energy will be the commodities of the 80s and the existing and potential renewable Hydro electric Energy will Auger Well for the future of and Winnipeg s Early development As a distribution Centre for the West May Well make the City a major manufacturing Point because of its Centra location and ease of shipping East West and South of Here Bates added. Part of Reuber s trip to Manitoba included a trip to the Carman area to visit a farm and meet with a group of Farmers in the Bank Branch there. He said charges by agriculture min ister Eugene Whelan that Banks Are not doing enough to help Farmers facing 21 per cent interest rates Are somewhat unjustified. He said the Bank has not foreclosed on any farm mortgages in Manitoba. Seven bankruptcies Bates said the farm Industry is one of the More stable parts of the Bank s portfolio and where there is the occasional Case of a Farmer facing financial difficulties the Bank has arranged re financing for him. He said that the rate of failure in the agriculture Industry is less than in other industries and he sees no reason for the Bank to offer special programs for Farmers. He added that the Bank already offers farm mortgages at one per cent below the prime rate if the Borrower has the necessary equity there were Only seven farm bankruptcies in the past 12 months Bates said which is a Small number in rela Tion to other sectors of the Economy. Immediate Steps urged to prevent rail rationing in Western Canada by Jack Francis rationing of Western rail traffic will begin in Early 1983 or 1984 unless imme Diate Steps Are taken for a major increase in rail line capacity the chairman of the Coal association of Canada said Here yesterday. Jack Morrish president of fording Coal limited said in an interview Federal transport minister Jean Luc Pepin was right when he warned main line capacity would be exceeded in mid decade by soaring resource Indus try demand. But the crisis was coming sooner than expected mainly due to massive increases in Coal shipments he added. Decisions must be made this year that would result in upgraded Western rail lines including action on the Crow rate or by 1983 the feared backup in freight will he warned. Morrish said All bulk shippers Grain Potash forestry and Sulphur would be affected. But Coal with exports of 14.1 million tonnes in 1980 projected to increase to 39.9 million tonnes in 1985 and 53.3 million tonnes by 1990, has the most to lose so we Are taking on the task of seeking a United industries position aimed at assuring the necessary capacity is he predicts world demand for Coal will grow from 229 million tonnes in 1979 to More than 500 million tonnes by 1990. Morrish told a news conference the Coal association was contacting Feder Al and provincial cabinets and the leaders of the different industries in a series of meetings to be followed up by a major general transportation meet ing planned for a Western Canada location later this summer. Proposals were Well received in a meeting yester Day with transport minister Don or Chard and agriculture minister Jim Downey of. Manitoba he added. Meeting useful Downey termed the meeting useful and said it was important for the provinces to get involved in the nation Al issues affecting their livelihoods. Morrish said it was essential to find the Western consensus this year that the Federal government has demanded before moving on changes in fail rate legislation. Without changes the rail ways would not be in an economic position to invest More in costly double tracking and Mountain Grade reductions. A key to unlocking the Handcuffs on rail investment is revision of the historic Crow freight rates on Grain freight basically unchanged in 75 years mor Ris said. He presented figures showing Coal freight rates have risen 321 per cent since 1970 while the prices charged shippers of Grain off the Prairies has not risen at All. The figures also showed Canadian Grain freight rates averaging 16 cents a Bushel compared with in United states. The Cost of moving Grain in 1981 is estimated at million with the railways bearing million the fed eral government million and producers million. By 1985, railway losses on Grain movement would reach million and tip billion by 1990 if projected sales targets were achieved Coal association spokesmen said. Obviously the Crow must mor Rish said or losses on Grain will limit the railways ability to upgrade lines and the whole Canadian Economy will suffer huge losses in potential business and spinoff it is no longer a question of Stop Gap measures like More Hopper cars for Grain and longer sidings for passing freight trains. Adding More trains can Only decrease efficiency if they Are stalled by longer turn around times because of clogged he said Coal trains completed the turn around Toad move to terminal unload move empties Back to Supply source five times faster than Grain trains. Coal association president Garnet Page said members companies with Coal sales Worth million last year expected to grow to billion by 1990 if transportation is available would be willing to pay its fair share of tariffs in needed changes in transportation policy. However the association favors a user pay policy with shippers of All commodities using the railways paying rates that assure a fair return for the he added. Spinoff effects Page saw no immediate prospects of reviving the dormant Manitoba Coal Fields in the Turtle Mountain area. Most mining is carried out in British Columbia Alberta Saskatchewan wit Small amounts in Ontario new Brunswick and Nova Scotia. But the spinoff effects from the activity and the advantages in other industries that More rail capacity would make Possi ble would Benefit All Canada. He noted direct employment in the Coal Industry of jobs and related jobs last year. By 1985, these will grow to and and by 1990 to More than and respectively Given the physical capability to move the Coal Page added. I ;