Fed Farmers urges hold on interest rates

The Reserve Bank should keep the official cash rate at 2.75 per cent, Federated Farmers says after its latest survey of farmer confidence showed only 2.9 per cent of farmers expected the economy to improve.

While farmers were not overly optimistic about the economy, they were slightly more upbeat about the profitability of their own farms.

In the email survey answered by 770 Federated Farmers members over 11 days this month, 17.3 per cent expected their profitability to improve, a big rise on the previous survey's 5 per cent.

At the same time, 40 per cent expected their production to increase, another jump on the previous survey.

Dairy farmers were the most optimistic, but sheep and beef and grains farmers felt they had less rosy prospects.

Economics and commerce spokesman Philip York said the federation was buoyed by farmers' response to policy signals to reduce debt levels.

"This is not just a dairy phenomenon. We see meat and fibre farmers as well as grains farmers moving in this direction as well. Debt reduction must be encouraged and keeping the OCR on hold will greatly facilitate debt retirement."

Commodity price levels and volatility were influenced by the exchange rate.

"We are concerned that any tightening of the OCR this week will put upwards pressure on the kiwi [dollar], to the detriment of the entire export sector."

The biggest single issue was the emissions trading scheme.

"Thirty per cent of respondents cite that as their main business concern and this worries Federated Farmers.

"Respondents want the Government to either scrap the ETS or further moderate it."

Farmers also felt "deep unease" about the effect of the size of the bureaucracy on the economy, which, while forecast to fall, would do so only gradually.

- © Fairfax NZ News