No time to increase the Official Cash Rate
Released 13 Sep 2010
Federated Farmers is pushing to keep the Official Cash Rate (OCR) on hold as part of Thursday's review that will correspond with a Monetary Policy Statement (MPS).
"Federated Farmers has been extremely cautious about any tightening of the OCR," says Lachlan McKenzie, Federated Farmers acting economics spokesperson.
"What we'd like to see is a clear statement in the MPS that the OCR will be put on hold for the remainder of 2010. This will help provide a floor, given the effective interest rates that farm businesses pay, is much higher than the OCR.
"Even before the unknown economic impact of Canterbury's 7.1 magnitude earthquake, we faced an appreciating Kiwi dollar. Every time bad news comes out of the US economy, the Kiwi spikes upwards, just today over $0.73 against the greenback.
"I think most export businesses, farms included, know it's a tough international trading environment.
"Despite the latest rise in the most recent globalDairyTrade event, we're still in negative territory for whole milk powders overall, since August. For our sheep, beef and grain farmers, things are especially tough and the dollar's strength is not helping.
"It seems global developments like risk appetite, commodity price recoveries and a struggling US economy, are now major drivers for our dollar. I suspect some in the markets could be thinking that earthquake reconstruction will be good news for the wider New Zealand economy.
"While this may be true in degrees, it will take time to play out and in the short term, the dislocation of businesses as a result of the earthquake may be an economic negative. Canterbury after all makes up around 15 percent of New Zealand's gross domestic product.
"The bigger risk to an export led economic rebalancing is the New Zealand dollar. Federated Farmers hopes a ‘warts and all' MPS, combined with a policy indication towards a hold for the balance of 2010, will ease this short-term pressure," Mr McKenzie concluded.
For further comment:
Lachlan McKenzie, Federated Farmers Dairy chairperson, 021 382 442, 07 332 3440
