3 December 2008
"In light of the Reserve Bank of Australia cutting its official cash rate to 4.25 percent, a 150 basis point cut is needed in New Zealand this side of Christmas,” said Federated Farmers economics spokesperson, Philip York.
Analysis by Federated Farmers economists pointed to the new Government being constrained by pre-election spending pledges. This puts the Reserve Bank of New Zealand in the position of being able to stimulate the economy by easing monetary policy. Federated Farmers also points to projections by the National Institute of Water & Atmospheric Research (NIWA), predicting above average temperatures and decreasing soil moisture over summer in key regions. The risk of drought over summer is another point the Reserve Bank needs to factor into its OCR decision. Last season's drought cost the New Zealand economy an estimated $1.2billion.
"Fonterra's recent downward revision of its forecast payout by $0.60 per kilogram of milksolids will reduce on-farm income by $720m,” Mr York said.