OCR hold 'only logical response'

Keeping the Official Cash Rate (OCR) on hold, is the only logical response to domestic related weather events coalescing with a precarious international situation. 

“With Ireland joining Greece in seeking a bailout from the European Central Bank, the international situation is worrying.  All eyes are now focused upon Spain and Portugal,” says Philip York, Federated Farmers economics spokesperson.

“We have no reason for complacency either, with our Government announcing yesterday a deficit $1.9 billion worse than forecast.  Federated Farmers asks why we are still borrowing $413 each second of every day – some $250 million a week.

“There is a day of reckoning coming as total New Zealand debt has grown by almost a third of Gross Domestic Product (GDP) in the past decade and now stands at 130.2 percent of GDP.  In July, Treasury warned the Government’s debt trajectory will pass 100 percent of GDP by 2050.

“Exporters cannot keep papering over the cracks in the domestic economy, given we’ve experienced one of the worst Springs in living memory. 

“Farmers have swung from Black September’s multi-billion dollar Canterbury earthquake to the weather scythe that cut through stock numbers in Southland and South Otago.  That’s now been followed by the current La Nina weather pattern, which last appeared in 1988/1989.

“Undoubtedly, production will take a big hit and when farmers get a chill, our economy catches the flu. 

“It has to be remembered that high forecast payouts are only attainable, if you’re able to produce protein and fibre to take advantage of them.  It’s questionable if we’ll be able to farm to full potential this season, especially as one third of the national dairy herd is in the Waikato.

“Yet for those who wish to pin this on the climate change donkey, the El Niño-La Niña-Southern Oscillation has only been around for the past 300 years.  The pattern we’re in, should remind Government that water storage is integral to productive economic investment.

“Federated Farmers believes the Reserve Bank has little option but to remain on hold and stay on hold, well into 2011,” Mr York concluded.