20 Jan 2016

Relief for farmers from dollar, interest rate falls

9:52 am on 20 January 2016

The exchange rate and interest rates will fall further this year and offer some relief to farmers, according to a Westpac currency strategist's predictions.

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Photo: 123rf.com

Indications were that the Reserve Bank would cut interest rates again later this year, and the New Zealand dollar was expected to fall to 62 US cents in the next few months, Westpac's Imre Speizer said.

"The main reason for that is we think our interest rates will be cut further, which is also good news for farmers," Mr Speizer said. "We think we'll get an OCR of 2 percent later this year."

"There's no inflation to speak of in New Zealand, so the Reserve Bank will eventually be forced to cut the OCR to try to engineer inflation back up into that 1-3 percent band," Mr Speizer said.

"So low interest rates here, and in contrast you've got rising interest rates in the United States, and that interest rate differential means we should have a lower kiwi-US exchange rate - so we are calling 62 (US cents). On top of that you've got global ructions with China's stuttering economy and that is going to hurt risk appetite generally."

When risk appetite suffered the New Zealand dollar usually did too, so the Kiwi should fall over the next few months, Mr Speizer said.

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