9 Jun 2009

Farmers want Reserve Bank to cut interest rate further

9:42 am on 9 June 2009

Federated Farmers want the Reserve Bank to cut the Official Cash Rate when Governor Allan Bollard delivers a monetary policy statement on Thursday.

Since March, the New Zealand dollar has climbed from about 50 US cents to a peak of 66 cents last week.

At 5.05pm on Monday, it was trading at 62.84 US cents, 78.68 Australian cents, 39.38 pence, 61.75 yen and 0.4490 euro. The Trade Weighted Index was at 59.78.

Federated Farmers says the strong currency will cut into dairy farm profits and the OCR should be trimmed further to discourage speculation in the New Zealand dollar and drive it down.

Dairy Division chair Lachlan McKenzie says the dollar could lower dairy returns by $1 billion this year - twice previous estimates.

But ANZ-National Bank chief economist Cameron Bagrie says a cut would have no effect on the currency.

However, BNZ chief economist Tony Alexander says Dr Bollard may trim the OCR by 25 basis points, because of the impact of the dollar on dairy farmers.

The OCR is currently 2.5% after being lowered from 3% on 30 April. Since 5 June, 2008, it has been reduced from 8.25%, which was set on 26 July, 2007.