70 MONTHLY IWV!EW, APRIL 1965 announcement, in February, that a planned review of cor- mutation in the fourth quarter of last year was $1.9 bil- porate depreciation practices will be postponcd. This re- lion, but that figure was of course influencedby the initial view might have cost the affectedcorporations an estimated widespread push to stockpile steel as a hedge against a $700 million in additional taxes this year as a result of pos- possible strike. The plans for the first half of 1965 are sible Treasury challenges of corporate practices since the more nearly in line with the moderate pace of accumula- 1962 liberalization of depreciation guidelines. tion that has prevailed throughout most of the current Prospects for inventory spending also show near-term expansion. Moreover, manufacturers' inventory plans strength, although further accumulation is planned at a seem modest even if judged against a projected sales de- more moderate pace than was recorded in the fourth dine in the second quarter of this year, when auto and steel quarter of 1964. According to a survey taken by producers expect their shipments to move back to more the Commerce Department in February, manufacturers normal levels from the exceptionally high first-quarter planned to add $900 million to inventories in the second volume. Thus, the plans imply a further decline in the quarter of the year following an expected addition of inventory-sales ratio, which has been generally trending only $700 million in the first quarter. The actual accu- downward since 1962 and is near its postwar low. The Money and Bond Markets in March The money market displayed a steadily firm tone dur- higher. Later in the month, a cautious tone reemerged ing March, readily accommodating the substantial flows of and prices receded for a time before steadying at the close. funds which occurred early in the month in connection Elsewhere in the capital markets, prices of corporate and with the quarterly corporate dividend and tax payments tax-exempt bonds continued to decline at the beginning and again in late March in anticipation of the April 1 of March but rebounded subsequently,partly in response Cook County, Illinois, personal property tax date. The to the same factors that affected the Government bond heavy demands placed upon the money market were re- market. flected in higher rateson some short-term money market instruments, including certificates of deposit. In the Treas- THE MONEY MARKETAND BANK RESERVES ury bill market, however, yields edged lower through most of the month in response to good demand—apparently The moneymarket in March retained the firmer tone reflecting to some degree a reflow of short-term funds that had emerged during the previous month. Nation- from foreign countries—which persisted even over the wide reserve availability continued to fluctuate around inidmonth corporate dividend and tax payment period. the lower levels that had begun to prevail in Februaiy. In the market for Treasury notes and bonds, the un- Federal funds traded mainly in a 4 to 4¼ per cent range, certainty about the potential repercussions of interna- and rates posted by the major New York City banks on tional financial developments which had clouded the at- call loans to Government securities dealers were gener- mosphere in February carried over into the early part of ally quoted in a 4¼ to 4¾ per cent range in the first half March, but a much more confident tone soon developed of the month, and in a 4¾ to 434 per cent range there- following favorable reports regarding the initial results after. Offering rates for new time certificates of deposit of the President's balance-of-paymentsprogram. Activity issued by leading New York City banks increased early in expanded and prices of coupon issues moved progressively the month, as banks sought to minimize the net decline in FEDERAL RESERVE BANK OF NEW YORK 71 outstanding certificates over the dividend and tax period. larly those in New York City, were able to satisfy the At the same time, rates on such certificates also edged major portion of their cnlarged reserve needs in the Fed- higher in secondary market trading. Rates on new and eral funds market where excess reserves previously ac- outstanding certificates stayed at the higher levels over cumulated by the "country" banks were redistributed. As much of the remainder of the month and then receded a result, member banks reduced their borrowings from siightly late in the period. Toward the close of the month the Federal Reserve Banks despite the contraction in most dealers in bankers' acceptances increased their rates average nationwide reserve availability in the statement by ¼ of a percentage point on all maturities of unendorsed week ended March 3. paper, following a substantial rise in dealer holdings of Over the following two statement periods, the money acceptances. market once again demonstrated impressive flexibility in As the month opened, reserve availability contracted accommodating smoothly the increased credit demands somewhat when reserves absorbed through market fac- and the massive transfers of funds and securities during tors were only partially offset by System open market the corporate dividend and tax period.System open market operations. However, the money market banks, particu- operations offset a substantial volume of reserves drained by market factors, and nationwide reserve availability was slightly greater than the levels prevailing in early March. Nevertheless, the reserve positions of banks in the leading money centers came under heightened pressure as these Table) banks experienced a runoff of time certificates of deposit, CHANGESIN FACTORSTENDING TO INCREASE OR DECREASK an loan demand from MEMBER RANt RESERVES, MARCH 1965 reinforced by expanding corpora- finance and securities dealers. The In millions of dollars; (-4-) denotes increase. tions, companies, money (—) decrease in excess re3.enei market banks continued to fill a large part of their needs in the Federal funds market—where trading generally Daily amnass..—witk ended — took place in a 4 to 4¼ per cent range—and expanded Factor c,s Mardi March Mardi March Mardi their borrowings at the "discount" window moderately. 3 10 17 24 31 The money market remained quite firm during the last two statement weeks of the month. Reserve of °Marb.rtacton positions Mbn bank rwjulred center banks continued under heavy pressure. First, —274 +227 —144 —110 + 00 —330 money Dactaflag UaaisscUosth tax checks cleared—wipingaway the temporary accumula- Ioutdotall + 60 ...622 .4. Olf +97 107 Fedwal Resirrvo float -4-130 — IT -4-409 6211 tions of tax deposits over the midmonth corporate tax TrnnauryoperatIons? — 30 109 — 105 — OfI + 49 — 44 ± —180 — 7 —282 Goldartdforelenaecnunt.. —54 —80 34 — date. Then, the of both the March 31 quar- Cirrenryoutaldcbaaks'.. + 16 —302 ±00 +20 -4-173 4 approach Other Federal leroervi, bank statement date and the April 1 Cook County, aerounts (oct11 — 42 .4. 50 +155 + *0 .4-100 terly tax date reserve needs. Total .'mexkn' factor,., — till — II'S — 74 119 — 2-17 — 795 Illinois, personal property generated + this Direct Faderci lIsten. endil Federal funds were in strong demand throughout fraanaetlona and remained within a 4 to open roneketl,,,Irurnenta period, trading primarily (futrlgbt holdIngs: 41/s cent At the same the of un- — 2 OS S$3 per range. time, margin GoternnuentSeeltTIttcO +117 —4- 174 + 57 + + llankcrs'acceptances... .4.1 — — I for Federal funds increased and member It.'purchasi' tgrrnnentt: satisfied demand (tpeen,rnent opc,trtttfto — ill 32 — 45 — 43 .4.. 1ff — 74 .. + — 03 bank borrowings from the Reserve Banks expanded— flaitken? arceprafltct ... + 32 -. 29 + 13 111 -4— 2 + hfeaitebankt.orn,ulnjes... —Un -(-113 —13 +02 +24 —32 the statement week ended March Other loan,. discovints.and particularly during 24, aiirannrs — —4 —19 + 1 4 20 when available reserves were lodged with country banks Tidal —13') +549 + 3') + 6 +173 +426 at the start of their biweekly statement period. (sent resenea' —224 +1114 —III +126 — 74 —114 Over thc month as a whole, market factors drained $794 million of reserves, primarily as a result of an in- Daily aeeraq. lewis of member bank: crease in reserves and a decline in float, as well Total rerev. including vault required esvli° 21,130 21.042 11.167 21.512 21.970 31.5.211 as changes in gold and accounts; on the other Requited rotates' 211,024 20.007 20801 21.040 11,000 20.9041 forei flrans rncve,r 112 944 330 422 078 3471 hand, System open market operations provided $699 Burruwlitaf 3111 355 370 443 407 2051 I're,re,e'es' —24 —10 44 —II —1119 —401 million of reserves. The weekly average of System out- Nnct,nnowed rrr,e,' 10,500 3)1,070 2)1,207 21,040 20.091 20,8201 right holdings of Government securities rose by $683 Note: Bectonc of ruuo'ltng. Ogurco do not necevoarilyadd to totals. million from the final statement week in February through -flew Iloores nrc ,ntnneted. while O Include, tbanonsIn Trsa,r,ryonnmicy and cash. the last week in March, average System holdings of 1 Includes nanta denuentuatedIn reraign currencIes. I Areraga for Sc-s weeka esded Merit 31. 1110$. Government securities under repurchase agreements de- 72 MONThLY REVIEW, APRIL 1965 Table II tone began to emerge. The market reacted favorably to re- RESERVE POSI11ONS OF MAJOR RESWRE CTTY BANKS of a risc in Britain's official international MAR 1965 ports February but news of a further United States loss In millions of dollars rescrvcs, gold exerted some restraint upon the coupon sector. Against DaVy avavagai—esekendad Average of this background, prices fluctuated narrowly from March 3 Factorsaffsctlnl " "i' March 10 in basicrisen, r°'ltlatn seded through light trading. March Mirth March March Mont March 3 10 17 24 31• 31• As the month progressed, a growing conviction emerged among market participants that the Administration's EI$I1 banks In New Yost City balance-of-paymentsprogram was yielding promising in- itial results, and this a considerable mi- Reserve ezoassor feeling produced dcficlency(—)t 16 10 — 1 23 s 23 provement in market atmosphere.