Very Red Hot off the Press - Federated Farmers Media Release "Thank you for listening Dr Bollard. Will the banks now act?'

4 December 2008

Thank you for listening Dr Bollard. Will the banks now act?

Federated Farmers has thanked Dr Bollard for listening to New Zealand’s farmers in cutting the Official Cash Rate (OCR) by 150 basis points to five percent this morning. The Federation now looks to New Zealand banks to pass on lower interest rates to businesses and farmers.

"Dr Bollard deserves high praise for delivering a record cut in the OCR. The Reserve Bank has listened to farmer concerns that the commodity outlook is ugly in the short term. We don’t expect commodities to turn the corner until late 2009 and possibly, the early part of 2010,” said Federated Farmers economic spokesman, Philip York.

“A cut of this magnitude is smart this side of Christmas. Federated Farmers’ economists first saw arable commodities softening in March and we warned in September, that the global outlook was bleak. We are hoping arable commodities might now be reaching the bottom of the current cycle but it is still too early to call.

“With the spectre of drought returning this summer, this cut will provide needed stimulus. More so as we expect Fonterra will need to revise its forecast downwards given the continuing slide in dairy commodities. 2009 will not be a stellar year for the economy.

“We fully support Dr Bollard in his call for financial institutions to pass on most of the 3.25 percent the Reserve Bank has cut from the OCR since July. Businesses are simply not seeing the OCR reflected in their overdraft interest rates. Dr Bollard is right to ask when businesses can expect the banks to pass on these lower wholesale interest rates to them?

“To reduce a major economic risk to the economy, the government must now prioritise water storage as part of its planned infrastructure package. New Zealand doesn’t lack for water, we just don’t bank the stuff when it’s plentiful.

“Last season’s drought hit the economy to the tune of $1.2billion. If we can keep the grass growing over summer it reduces an increasingly large risk to our economy. Banking water is an economic no brainer,” Mr York concluded.