Pressure building for OCR rise but not yet, farmers argue
Released 09 Jun 2010
As speculation mounts about a potential rise in interest rates at tomorrow's Official Cash Rate (OCR) and Monetary Policy Statement (MPS), Federated Farmers is asking the Governor of the Reserve Bank to keep the OCR on hold until at least July.
"We are seeing evidence of domestic recovery and inflationary pressures that will need a tightening of monetary policy," says Philip York, Federated Farmers economics and commerce spokesperson.
"Yet that's a reflection of fiscal and wider policy decisions and not activity in the export economy, which remains fragile despite some recent gains.
"It is right that the monetary policy brakes be applied soon, but we are thinking July rather than June. We further hope it will be a graduated increase as opposed to aggressive - now is not the time to hit exporters hard.
"The latest farm sales data from the Real Estate Institute underscores that farmers are focused on debt retirement. Looking to our colleagues in horticulture we see a similar picture given we are trade exposed.
"While there is some good news in terms of soft commodities we are extremely cautious that this floor is not solid in many of our major markets.
"That's why we hope the OCR will remain on hold in June as every percentage point counts for exporters. In saying that, we do see strong domestic inflationary pressures building on the horizon, led by the GST rise, the emissions trading scheme, excise tax increases on tobacco and higher ACC levies.
"It's why we hope the June MPS will provide a very clear message to Government about its fiscal policy decisions and wider policies, including the ETS. Collectively Government at all levels is leading an inflationary charge.
"That shot 'across the bow' must include local councils and the Auckland supercity transition. Councils should learn from how ECan managed to slash its proposed rates increase that Federated Farmers applauds.
"New Zealand also remains vulnerable in terms of debt to Gross Domestic Product (GDP), so the MPS is a chance to lay things squarely on the line.
"New Zealand owes the world 90 percent of GDP or $168 billion. By way of comparison, Italy is currently at 115 percent of GDP, Greece is at 125 percent and even Europe's saviour, Germany, has a high GDP to debt ratio of 77 percent.
"Getting fiscal policy under control is like rebooting a computer - it will speed up a sustainable domestic economic recovery led by exporters," Mr York concluded.
For further information contact:
Philip York, Federated Farmers economics & commerce spokesperson, 027 290 5418, 09 292 8843
