Farmers keep heat on banks

Federated Farmers has told the Parliamentary Banking Inquiry today that there is still room for interest rate cuts.

“The Federation has been campaigning for lower interest rates for some time now. Our surveys have indicated that farmers are not receiving the full benefit of significant cuts to the Official Cash Rate (OCR),” says Philip York, Federated Farmers economics spokesperson.

“The Reserve Bank of New Zealand’s July paper on bank funding costs and margins suggests fixed interest rates are appropriately priced, but floating rates remain too high.

“About $7 billion, or 15 percent, of the $46 billion agricultural debt consists of floating rates, meaning even a 100 basis point cut to floating rates would immediately save farmers around $70 million a year. A similar sized cut to fixed rates could, over time, put another $400 million back into the agricultural economy.

“While we agree New Zealand needs a strong banking system and that banks are experiencing lower profits this year, the Federation told the inquiry that farmers expect banks to share the pain through the recession and into the recovery.

“The economy appears to be showing encouraging signs of recovery, but it is a fragile rebound that depends on the productive, export-led sectors to lead the way.

“During a series of recent meetings with the main banks, Federated Farmers was encouraged by their commitment to their clients through these tough times.

“But the Federation has lingering concerns over swap interest rates and the way some farmers have allegedly been pressured into taking on swap rates. In some cases, farmers on these swap rates end up paying higher rates than they were before. There is a lot of confusion and anger among farmers over swap rates and the banks would be wise to consider this when promoting them.

“Meanwhile, the Federation is encouraged by the banks’ comments to us, but we are keen for the Reserve Bank to do its bit. It must continue to monitor the situation and provide the public with regular updates on bank funding costs and interest rates,” Mr York concluded.