29 Oct 2015

Unchanged OCR no shock to farmers

2:05 pm on 29 October 2015

An independent rural finance consultant says farmers were expecting the official cash rate to remain unchanged, even though they'd like it to be reduced.

The Reserve Bank has left the rate at 2.75 percent.

Reserve Bank

Photo: RNZ

The consultant, Don Fraser, said farmers were pleased interest rates have been trending down this year, but they didn't get their hopes up for another cut on Thursday morning.

"I think that farmers have a pretty realistic view on the world and I don't think they (were) expecting an interest rate cut this time," Fraser said.

"Certainly they'd prefer the interest rate down as it's a big help to farmers. I think they are very grateful that interest rates have fallen and that the Reserve Bank has allowed them to come down. We have one of the highest interest rates in the world and I think (a reduction) helps our farming businesses hugely. Imagine a one percent drop if you're carrying five or six million dollars worth of debt. Cost of debt and cost of interest on a dairy farm is one of their major costs."

Fraser said the mood among farmers was not all doom and gloom, especially for those with mortgages on floating rates.

"There's not a huge amount of optimism but there's a large amount of realism, realising that most of them will be able to service their debt and maintain their farms. The dairy payout has risen on the back of a very low prediction. Things are looking a little brighter. I guess they're also through the winter. Interest rates look like they're trending down and most farmers are on floating rates. I think for the last five years and certainly going forward, floating is the only place to be. A lot of the banks try to get you to fix but I don't think that's in farmers' best interests, because they can't get the benefit from any interest rate fall."

Fraser said farmers were also keeping a close eye on the exchange rate, which had been moving higher since September.

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