Farmers relaxed over impact of third OCR hike

JAMIE SMALL AND RICHARD MEADOWS
Last updated 05:00 13/06/2014
Waikato Times

With NZ agriculture in good shape, the concerns of outgoing Federated Farmers president Bruce Wills are new health and safety requirements and farmers debt.

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The rural crowd at the Fieldays say they will take the third Official Cash Rate hike this year on the chin, despite high levels of farm debt.

The Reserve Bank yesterday announced a rise of 0.25 per cent, taking the OCR to 3.25 per cent.

That will hit homeowners, with some banks already announcing a corresponding lift in floating interest rates. It will also probably hit farmers, with the bank last month estimating 70 per cent of the $32 billion worth of dairy-farm debt is in floating mortgage rates.

However, cockies at the Fieldays weren't fazed by the announcement.

Murray Hawkings from Matamata said farmers were "pretty adept" with finances, and would be keeping an eye on interest rates. Most "have got their debt covered now by fixed rates".

Hawkings said those he knew were being conservative.

"We just came through the GFC [Global Financial Crisis], so there's still a bit of caution there," he said.

"Farming is a long-term thing, not just a year at a time."

Horowhenua farmer Paul Dowdle said he didn't have a lot of debt, and interest rates were still historically low. "Coming from when interest rates were much higher, it doesn't look that high."

ANZ rural economist Con Williams said he was "optimistic", despite the high risk in the dairy sector should interest rates pick up.

He said farmers' return on investment had been high over the past couple of years, making it a good time to invest.

However, homeowners have nowhere to run, with fixed rates also expected to climb, ending the run of "special" deals in recent weeks.

The central bank's past two increases have seen banks move quickly to hike floating mortgage rates, which are closely tied to the OCR.

Shortly after the announcement, ANZ said it would raise its floating and flexible rates by 0.25 percentage points this month.

Longer-term fixed mortgages are more closely related to "swap rates", which have already largely priced in the expected series of hikes.

The Co-operative Bank chief executive Bruce McLachlan said: "You're definitely going to see the floating rates go up."

This time there was likely to be some movement in fixed rates, too.

Westpac chief economist Dominick Stephens agreed, saying financial markets had been skeptical of the Reserve Bank's resolve.

"That had caused a drop in fixed-mortgage rates and produced an opportunity to fix," he said. "I think that opportunity will rapidly disappear following today's statement."

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