Last of the big Official Cash Rate cuts?

“Federated Farmers congratulates the Reserve Bank for its 50 basis points cut to the OCR this morning,” says Don Nicolson, President of Federated Farmers.

“The Reserve Bank has acted decisively in light of the international situation but as the OCR gets ever closer to zero, it is clear time has come to ease off on large cuts to the OCR.

“As the Prime Minister said in The Wall Street Journal, New Zealand must grow its way out of recession. That’s why Dr. Bollard has joined with Federated Farmers to reiterate the importance of lending to sound businesses. Banks must also pass on the large OCR cuts to their business customers.

”While some economists were picking a two percent OCR by June, or even by April, Federated Farmers is increasingly cautious.

“Simply following the global pack towards lower official cash rates may start working against the New Zealand economy. New Zealand has far less exposure to manufactured consumer goods than almost any other OECD country.

“Since everyone eats food, Federated Farmers is increasingly buoyed by positive numbers coming through for our agricultural exports. The Federation expects the bottom will be reached for most commodities by mid-year with recovery towards the end of 2009 and the first half of 2010. Farmers are now seeing light at the end of the tunnel.

“For many farmers, a more pressing problem for the Reserve Bank is persistent inflationary pressures arising from the non-tradable sector, such as local and central government spending and charges.

“The Federation is concerned non-tradable inflation could be boosted by overly loose monetary policy as the economy starts to recover in the medium term. More so with the OCR and 90 day bill rates at historic lows, both totally justified under current conditions.

“Another issue that needs tackling is the delivery of interest rate cuts to businesses. The latest survey by Federated Farmers showed that after two cuts totalling 300 basis points, only 156 basis points had been passed onto farm business overdraft facilities.

“Given all New Zealanders depend upon agriculture in some way, the banks need to be more transparent and open about the way farm business debt facilities are being structured,” Mr Nicolson concluded.