Federated Farmers pushes for OCR to be kept on hold

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Federated Farmers is pushing to keep the Official Cash Rate (OCR) on hold till the end of 2010 as part of Thursday's review that will correspond with a Monetary Policy Statement (MPS).

Monday, September 13th 2010, 4:58PM

Federated Farmers acting economics spokesperson Lachlan McKenzie says Federated Farmers has been extremely cautious about any tightening and it would like to see 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."

He says even before the unknown economic impact of Canterbury's 7.1 magnitude earthquake, Federated Farmers faced an appreciating Kiwi dollar.

 "I think most export businesses, farms included, know it's a tough international trading environment."

He says despite the latest rise in the most recent globalDairyTrade event, Federated Farmers are still in negative territory for whole milk powders overall since August and for sheep, beef and grain farmers, things are especially tough with the dollar's strength not helping.

"It seems global developments like risk appetite, commodity price recoveries and a struggling US economy, are now major drivers for our dollar."

McKenzie suspects 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.

He says 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," says McKenzie.

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