Farmers call for a 50 basis points OCR cut

Federated Farmers is calling for 50 basis points to be cut from the Official Cash Rate (OCR) on Thursday to put downwards pressure on the high New Zealand dollar.

“Given pessimism highlighted in Federated Farmers Farm Confidence Survey, a dramatic 50 basis points cut to the OCR could shake the dollar, which is testing US$0.6630,” says Philip York, Federated Farmers economics spokesperson.

“Federated Farmers recognises a cut of this size would bring the OCR down to its probable floor of two percent. Yet relief is needed on-farm given the current season will result in sharply reduced export returns, the impact of which is yet to be felt by the domestic economy.

“The persistently high kiwi dollar is a big headache for farmers and exporters. It seems high for all the wrong reasons as money is sucked in to fund consumption. This reality was identified by the Minister of Finance, the Hon Bill English, only last month.

“Aside from a big OCR cut, Federated Farmers looks forward to the Reserve Bank Governor, Dr Alan Bollard, delivering an uncompromising Monetary Policy Statement (MPS). Farmers are asking Dr Bollard to use everything in his toolbox to tackle interest rates and the high dollar.

“For the past five years, much of the non-farm tradeable sector has been in recession. What has kept the economy ticking along has been agriculture, but that, too, is now struggling.

“Over the past five years, the non-tradeable sector, led by central and local government spending, has exploded. It has contributed to a deteriorating current account deficit, which has caused the New Zealand economy to underperform.

“This non-tradeable growth deserves opprobrium. Dr Bollard must challenge the Government to attack like gorse, its own spending decisions as well as local government rates and charges.

“Dr Bollard also needs to ensure that the banks and non-banks are passing the lowest possible interest rates through to businesses.

“The high kiwi dollar is a symptom of how imbalanced the New Zealand economy has become. At a time when private credit growth has slowed sharply, Government borrowings are set to grow in order to fund the deficit. This will add upwards pressure on the New Zealand dollar.

“Clearly something has to give and for far too long that has been the tradeable sector. The needs of the productive economy must be put first if New Zealand is to generate real growth and real jobs,” Mr York concluded.