10 Sep 2015

Interest rate cut 'won't save farmers'

2:00 pm on 10 September 2015

Today's drop in interest rates won't be a game changer for struggling dairy farmers, a farm accountant says.

New Zealand money.

Photo: RNZ / Alexander Robertson

The Reserve Bank has cut the Official Cash Rate (OCR) to 2.75 percent, citing slowing domestic activity due to lower dairy prices, a plateauing of construction activity in Canterbury and weaker confidence.

Christchurch farm accountant Pita Alexander said the dairy payout was far too low for reduced interest rates to make any major difference to expected losses this season.

"Most dairy farmers are going to have a loss this year of about $1 a kilogram at this milk solids payout, so we are definitely hoping for a higher payout," he said.

"But these lower interest rates? Yes, they'll help, because they should drive down the floating term loan rate - so they'll certainly help but they wont be a solution. At the moment, it does look like the right move to be floating but there'll be a limit to how low we get [with interest rates]."

Mr Alexander said farmers with savings in the bank were being slaughtered by the lower interest rates.

He said anyone with $1 million in the bank would get a return of about $27,000 a year after tax on current interest rates, which was not a lot of money for that amount of savings.

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