A leading financier has called today’s cut in the official cash rate ‘inevitable’ – in light of the dairy payout cuts.
This morning’s Reserve Bank Official Cash Rate cut of 25 basis points from 3.25% to 3%.
Banks have been quick to follow, a number already cutting their floating mortgage rates.
Auckland property financier James Kellow, director of New Zealand Mortgages & Securities, says the cut was strongly expected.
“Yes there’s a lot of moving parts to the New Zealand economy and many other sectors are doing well,” Kellow says. “However we can’t shy away from the fact that dairy has historically been New Zealand’s biggest export earner and when Fonterra sneezes, the rest of the country catches a cold.”
“Last month we saw the first cut in the OCR in four years but now it’s all on. In recent months we’ve seen dairy prices fall much further than expected and at the same time the Reserve Bank is conscious it needs to nudge up very low inflation and get back within its 1% – 3% inflation target band.”
“Falling milk prices won’t just affect farmers and businesses in New Zealand’s dairy-rich service towns,” Kellow says. “Auckland will not be immune. You just have to look at the 523 job losses mostly in middle management recently announced by Fonterra.”
In his statement announcing the cut, Reserve Bank governor Graeme Wheeler sys the cut was warranted by the softening in the economic outlook and low inflation.
Wheeler says at this point, some further easing seems likely.
