12 Jun 2015

Reserve Bank interest rate move - a relief to farmers

8:25 am on 12 June 2015

Federated Farmers has welcomed the Reserve Bank's decision to lower the base lending rate, saying it will help to ease pressure on dairy farmers struggling with low milk payouts and high debt levels.

The country's central bank has reduced the official cash rate from 3.5 percent to 3.25 percent, the first fall in more than four years.

Following the announcement, bank lending rates began to fall and the New Zealand dollar dropped.

Governor of the Reserve Bank Graeme Wheeler said a lower dollar and reduced interest rates on lending could help hard-pressed farmers.

"I mean if you look at the dairy sector debt, it's roughly around $30-billion dollars. It's large, and around half of that debt is owed by 20 percent of the farmers and we think that roughly 25 percent of farmers have negative cash flow at this point."

He said a lot of the farm lending is on floating rate loans, so it should help in that respect.

Federated Farmers president William Rolleston said the Reserve Bank decision was overdue.

"The issue for us has been that dairy prices in particular have come off and that's put pressure on farmers, so a lower exchange rate will lead to a lower dollar and that will help balance the returns for farmers.

"It will help all farmers who have any sort of level of debt, but I would put the warning out there, that this is not a signal to start putting those reduced interest rates into increased farm prices. I think farmers are well aware that the next 12 to 24 months are going to be tough."

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