Media Release
9 September 2009

Farmers say cut OCR to avoid a ‘dead cat bounce’

Unless the Reserve Bank cuts the Official Cash Rate (OCR) by 50 basis points tomorrow, Federated Farmers believes New Zealand risks a ‘W’ shaped recession.

“The ‘sit on your hands’ approach has just seen the dollar appreciate sharply since the OCR was kept on hold in July,” says Don Nicolson, Federated Farmers President.

“With the New Zealand dollar hitting one-year highs at almost US70 cents, this spells bad news for the export sector. We know the Reserve Bank has a hard call to make. The last thing we want of course is another debt-fuelled consumer boom.

“Yet the dollar is at levels which do not seem to reflect New Zealand’s economic fundamentals or what we consider to be a fair value for the kiwi dollar.

“While we have major reservations about inflation, Federated Farmers economists believe the supposed green shoots of recovery are weeds and not clover. New Zealand could easily dip back into a sharp recession unless there is a sustained export led recovery.

“It has to be remembered that the first cheques for New Zealand’s biggest export sector will only start rolling in this month.

“I’d really like to know what Treasury is on for it to be so bullish about the economy, as it must be good stuff.

“If New Zealand cut to two percent this Thursday, it would open up a full percent difference with Australia. After the Australian cash rate was left on hold last week, the next move over there is expected to be upwards and that will increasingly differentiate the two economies.

“We believe it’s way too early to be calling this recession’s end. The expression ‘dead cat bounce’ comes to mind as this recession starts to resemble a ‘W’ shape rather than the ‘L’ we previously called.

“New Zealand can only close the trade gap by exporting goods and services. Any perception of an improvement is being driven by domestic activity, people grasping hold of any positive news and of course, the coming of spring.

“If you strip away the emotion, the cold hard truth is that the international situation remains precarious so a 50 basis point cut to the OCR will aid the tradeable economy,” Mr Nicolson concluded.

ENDS

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