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Drought hit farmers await OCR announcement

Many kiwi farmers already struggling with near-drought conditions are bracing themselves for an interest rate hike – when the Reserve Bank Governor makes an announcement later this week.

A recent Reuters poll of economists showed widespread expectation for a rise in the Official Cash Rate from its current record low of 2.5 percent, with a figure somewhere between 2.75 and 3 percent the most likely outcome.

Federated Farmers President and former Economic adviser Bruce Wills says the rise has been signposted by Governor Graeme Wheeler, and so farmers won’t be surprised if and when the OCR rises.

“We would be surprised if this rate didn’t move.

“6 months ago, at the last review, we called on the Government to hold it, but this time there’s strong consensus to move it.

“The economy’s moving along well, and we wouldn’t be celebrating a move in interest rates, but we acknowledge that inflation is a real factor to take into account.â€

Bruce Wills says there’s more than $50 billion dollars of debt in the rural economy at the moment, so even a small increase will have huge significance, but there are grounds for optimism.

“It is significant, we’ve got around $52 billion in debt in rural New Zealand, and we’re expecting to see the momentum of this economy take the OCR up two or three percent in the next three years.

“If you take the worst case scenario there, three percent is $1.5 billion, just to service interest rates.

“That’s a big chunk of cash.â€

Mr Wills says it’s encouraging to see the Reserve Bank looking to address what he says is the biggest area of concern – not the country’s export earners, but the Auckland housing market.

Bruce Wills and Federated Farmers have been lobbying Governor Wheeler and his predecessor, Allan Bollard, about the inflationary pressure caused by Auckland’s expanding property bubble for some time now.

– Drew Chappell for Country TV

– Picture: NZ Govt supplied


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