Still room to cut interest rates, survey says

Federated Farmers latest interest rates survey released today shows little change in farm interest rates over the past three months.

“We’ve placed intense pressure on the banks to pass cuts to the Official Cash Rate (OCR) on to farmers’ overdraft and wholesale interest rates,” says Philip York, Federated Farmers economics and commerce spokesperson.

“While our last survey on 1 September 2009 indicated the average farm overdraft interest rate was 8.48 percent, this latest survey reveals overdraft rates have dropped by just 0.01 percent to 8.47 percent.

“Average farm mortgage interest rates, meanwhile, remain unchanged since 1 September 2009 at 6.97 percent. Yet, at the same time, the OCR has been held at 2.5 percent, with no change today either,” Mr York added.

Federated Farmers latest interest rates survey was conducted between 18 and 27 November 2009. It garnered 323 responses from arable, dairy, meat and fibre and ‘other’ farmers, covering eight major rural lenders.

“I must say the survey results were wide spread, with some farmers enjoying overdraft rates as low as 5.4 percent and mortgage rates as low as 4 percent.

“Yet other farmers face significantly higher than average rates, with some staring down the barrel of overdraft and mortgage rates of 22 and 10.17 percent, respectively.

“Looking back at the previous year, farm overdraft interest rates have fallen by about the same as the 90-day bank bill rate. Since 30 April 2009, however, mortgage interest rates have fallen by a little more than the 90-day bank bill rate.

“Clearly cuts to the OCR have not been fully reflected in wholesale interest rates, with the OCR falling by 4 percent since the end of last year but the 90-day bank bill rate falling by just 2.43 percent.

“Although we acknowledge banks funding costs have risen as the OCR has fallen, the Reserve Bank stated back in July that there was further scope for deeper cuts in floating rates. Federated Farmers believes this is still the case.

“Another disturbing issue to arise is that 12.5 percent of the survey’s respondents said their bank was placing pressure on them to restructure their finances.

“Some respondents also reported difficulty extending loans and obtaining extra finance, while others said their bank directed them to sell parts of the business such as a run-off block.

“Federated Farmers is determined to get to the bottom of these claims and want to meet with the banks to discuss these results.

“In the interests of transparency, we are also keen to see the Reserve Bank regularly publish its helpful analyses of bank funding costs,” Mr York concluded.