Farmers say well done Reserve Bank

Federated Farmers is commending the Reserve Bank for keeping the official cash rate at 2.5 percent.

“But now it’s time for banks to cut their borrowing rates in response to Government announcing an end to the wholesale funding guarantee scheme,” says Federated Farmers President, Don Nicolson.

“Sovereign debt’s built up around the world, so understandably the global financial markets are staying pretty cautious. But market conditions are improving, which means New Zealand banks are raising funds without having to use the wholesale funding guarantee scheme.

“As the markets improve, it’s now time for banks to cut back the ‘liquidity margins’ they imposed last year. These margins, when charged on top of base interest rates, can add hundreds of base points to farm lending rates and that’s not good for farmers or other business owners.

“Dr Bollard has predicted a tighter monetary policy, but the Reserve Bank is now using altered capital adequacy and prudential liquidity policies that can also help. So I expect the ORC won’t need to rise much in the future, reducing pressure on the exchange rate.

“On the horizon there’s short term inflation pressure, a consequence of the Emissions Trading Scheme, ACC levy hikes and possibly a higher GST rate. We think these will result in less consumer spending, so we’re saying there’s no need to tighten monetary policy in response to these hikes.

“We congratulate Dr Bollard for again telling Government to constrain spending and allow monetary policy to do its job,” concluded Mr Nicolson.