Exporters welcome rate cut

5:41 am on 11 March 2016

Dairy farmers and manufacturers are welcoming a cut in the cost of borrowing by the Reserve Bank, saying it would make them more competitive against their foreign rivals.

The central bank cut the official cash rate to a fresh record low 2.25 percent, and signalled more reductions were in the offing.

Lloyd Downing, who milks 500 cows just out of Morrinsville, said the rate cut was a relief to struggling farmers.

Zespri Kiwifruit is loaded onto the Atlantic Erica at the Port of Tauranga.

Photo: Supplied

He said the move showed the central bank knew how tough things were.

"Farmers are inclined to feel that nobody actually cares for us and as long as we're milking the cows, nobody cares. But, it's an example of where the Reserve Bank governor is listening and he's got a pretty good handle on it."

The Manufacturers and Exporters Association welcomed the sharp drop in the dollar against its American and Australian counterparts that followed the rate decision.

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Its chief executive Dieter Adam said it would help firms compete.

"We are hopeful this drop will be sustained, however, even if it does, our dollar will still be well above what the RBNZ itself would consider appropriate."

Some worry a rate cut will fuel an already overheated Auckland housing market.

Chief executive at Co-operative Bank Bruce McLachlan said the housing data was not reflecting the buoyancy that was already in the market.

"We are going to see that come through the data, and I think this move is going to potentially fuel significant further rises in demand and therefore house prices."

While the central bank governor, Graeme Wheeler, also remained concerned about the Auckland housing market, he noted house price inflation has moderated from 27 percent per annum growth in September to 14 percent in January.

Indeed, Mr Wheeler said at least one more rate cut may be needed to generate higher inflation.

"We've built in two cuts into those interest rate projections, Now one of those cuts was today. But we'll closely watch the data and see whether we do need another cut or indeed whether we need more than one cut."

Most economists are now scrambling to revise their forecasts, after being caught out by today's decision. Another reduction could come as early as next month.

And for some, 2 percent would not be the bottom.

ANZ Bank is now picking 1.75 percent by the end of the year.