NZMEA calls for Reserve Bank to cut OCR; Federated Farmers wants OCR held for rest of 2010

NZMEA calls for Reserve Bank to cut OCR; Federated Farmers wants OCR held for rest of 2010

The NZ Manufacturers and Exporters Association (NZMEA) is calling for The Reserve Bank to cut the Official Cash Rate (OCR)  on Thursday, arguing a lower interest rate and exchange rate going into 2011 will provide a more stable recovery.

NZMEA Chief Executive John Walley said in a statement manufacturing volumes were at a 10 year low and exporters needed help to lead the recovery, despite signs of recovery.

"We have always been of the view that September should have been the first point to even consider a rate increase. Add in the South Canterbury Finance collapse and an earthquake in Christchurch, and the OCR hikes are looking increasingly unnecessary," he said.

Walley said a Global Competitiveness Index released last week ranked NZ 79 out of 139 countries on interest rate spreads (the difference between typical lending and deposit rates), which showed that exporters needed better alignment.

He said faltering recoveries in Europe and the US had caused their central bankers to signal long-term low rates, threatening NZ's export volumes and margins.

"We need a rate cut to send some strong signals on the exchange rate to support exporters," he said.

Federated Farmers wants OCR held

Federated Farmers said it was "extremely cautious" about any tightening of the OCR.

Spokesman Lachlan McKenzie said he wanted a clear statement in Thursday's Monetary Policy Statement that the OCR would be put on hold for the remainder of 2010.

"This will help provide a floor, given the effective interest rates that farm businesses pay is much higher than the OCR," he said.

McKenzie said a struggling US economy, commodity price recoveries and increased risk appetite had caused the NZ dollar to appreciate to 73 USc.

That made for a tough international trading environment for export businesses like farms.

“Despite the latest rise in the most recent globalDairyTrade event, we’re still in negative territory for whole milk powders overall since August.  For our sheep, beef and grain farmers, things are especially tough and the dollar’s strength is not helping," McKenzie said.

While some in the markets might think the earthquake reconstruction in Canterbury will boost the national economy, the bigger risk to an export led economic rebalancing is the NZ dollar, McKenzie said.

"Federated Farmers hopes a ‘warts and all’ Monetary Policy Statement, combined with a policy indication towards a hold for the balance of 2010, will ease this short-term pressure,” he said.

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and this number of posts to this subject speaks volumes about how one dimensional and pathetic slaves to the Bank we have become......

f%&*in peasants.

The problem I have with FF is they appear do anything to forward the case for their members no matter what the damage to others or logic....

I just happen to agree this time.



Point taken is always unfortunate when this organisation is the vanguard for improvement in the area of earnings........

But I guess that's why it suits the interested parties....the wolf boy cried out once too often.

Nothing wrong with improving earnings provided its a win win........but a 5% win for farmers and a 50% loss for consumers or the environment isnt the way to go....sadly this is how they often come across. Maybe they need new leadership, a more pragmatic one.


Can't see RB cutting OCR at all - sends a really confusing signal to the broader market, which includes the speculators....

Can see RB holding OCR where it is - focus should be on the comments and the tone of the comments - not on the actual number...  

We see Roger J Keer (good old Rog) on this website saying the RB has to pull out the stimulus, but the usual suspects saying that the stimulus should be increased by cutting the OCR.... 

If Bollard pleases none of the people all of the time then he has probably got it about right.

As things stand we are looking at an aneamic recovery....we might find say 2 years from now the "boom" was hardly measurable and we are now into a bust...or it could be a decade long.

The worry about cutting the OCR is because of a severe event that sends us into a double dip and a deep one....this would be an event of magentude and as such cutting the OCR would be sane...

RJK is I think wrong at this stage, its more likely that the above will happen and the OCR will be cut.

Generally he pleases me, I think he's trying to do a difficult job...and doing his best, cant see anyone else doing a better one.


Full NZMEA press release here:

RBNZ made a mistake and started tightening far too soon, as NZMEA and others said at the time.  Instead of using the OCR when RB needs to tighten they could use the CFR, variations of it and other macroprudential tools. It'd be just as good for those saving and those savers living off the interest on their savings - and your Big Macs would cost less!

Cheers, Les.

I dont agree....the stimulus has to unwind, gradually is more sensible....rather than big steps later and over-shooting.........then the NZMEA would whine even more....

Some of the stuff Im reading suggests that with OCR's too low lots of speculation occurs...and that appears detrimental to the real economy, ie ppl who make a real good. CFR cant be varied at the drop of a hat...its something with 12 months lag...


Can you explain your comment, "CFR cant be varied at the drop of a hat...its something with 12 months lag..."?

CFR = Bank core funding ratio?

How can you tell banks every 6 weeks or 3 months to change that "instantly"? I dont see how they could comply.....hence why I think its considered that the new neutral for the OCR is lower at 5%....the CFR is then an effect on top of that....the CFR is l a long term smoothing tool....please explain if Im mistaken...


Compliance with a re-specified CFR would not be instant, but issuing a re-specified CFR schedule could be and once RB has the relationship taught between CFR, inflation and retail interest rates, the latter would also move in response, henec without as much impact on NZD. In addition, the shape and constitution of the CFR could be varied, eg. sub-12 month onshore specific funding varied.   

More robust and determined use of CFR along with other tools (LVRs, being asset specific also, ban/part-ban fixed rate loans,) would see a lower neutral develop over a period of time, less specualtive pressure on NZD (carry in particular) the economy rebalance and housing become more affordable, noting also that incomes would increase due to rebalancing.

Add supporting tax policy, eg effective land, capital, gains taxation, the neutral goes lower, rebalancing happens faster, etc. However, fat chance of any of that while the political will does not exist to challenge the status quo, hence the reason the 'Saving Working Group' were told not to mention it - because it's balls on dog obvious the positive effective it would have on the wider economy, (increased earnings) but just as obvious are the negative effects on the vested interests and status quo supporters. Hence no change.

Cheers, Les. 

The NZMEA shouldn't wait any longer but join "The Viva Revolution" 27th of November 2010 for a better NZ.

The OCR (and Bollard) are now both redundant.  Banks 6 months deposit rates are currently 5% whereas the OCR is 3%.  Does adjusting the OCR by 0.25% actually make any notable difference?  

Yes, OCR + NZRB's other/new tools = 5%

So increasing the OCR will see an increase, my floating nudged up last time, another 25points will nudge it up again....hardly a difference for me with such a small about $5.....


Just a pause in rate hikes that will reassume in the next meeting. The exchange is fine and very inflationary nearing 1.30 against the AUD. Trade will improve to May levels.

Tech sector tipped to top dairy, despite dip 

"...  the sector still has the potential to surpass dairy as the country's number one foreign exchange earner."

Indeed, given the absence of natural resource restraints that dairy and ag. suffer, differentiated products have the potential to double and better what dairy can do, see New Zealand Institute report, "A goal is not a strategy"

".... concludes that New Zealand needs to focus on the internationalisation of high value, differentiated export sectors, prioritise labour productivity improvement efforts on these sectors, and reallocate resources from low to high productivity sectors."

From page 44 of that report: "The floating exchange rate is a mixed blessing. If New Zealand was only going to be a dairy product exporter the floating exchange rate would be beneficial because it provides a natural hedge, smoothing out the effects of dairy price changes. When commodity exports are strong the exchange rate appreciates and the outcome is as it should be – the high value of the New Zealand dollar is earned by the fundamentals of our export position. When commodity exports are weak the dollar depreciates so the country earns more New Zealand dollars for each unit of volume exported. Earnings in New Zealand dollars are smoothed.

The outcome for exporters of differentiated products and services is not so good. Exports are usually priced in the currency of the destination market so the consequence of the exchange rate rising and falling for non-commodity exporters is that earnings fluctuate. A government inquiry into the future monetary policy framework in New Zealand found the exchange rate had been “volatile and subject to prolonged periods of under and overvaluation, potentiallyconstraining growth in both the value and the volume of New Zealand’s exports” (Finance and Expenditure Committee, 2008, p.14). Volatility of earnings is very more difficult for them to succeed. Uncertainty creates risk that discourages investment, so policies to reduce exchange rate volatility or its impacts are needed to grow differentiated exports successfully."

Balls on dog obvious what needs to be done, huh?

What chance of appropriate change?

Cheers, Les.

A fixed exchange rate? no....a tobin tax? yes....


No to both those there are more practical options, see recent IMF reports on macroprudential approaches.


A tobin tax actually has would seem lots of speculation occurs in a very short time span on the NZD.....remove the margin or incentive for speculators and you get stability....that's the theory anyway.


I cant at the moment find anything recent on the above from the IMF....from googling anyway....

On the face of looks like you are "abusing" the please explain...what you are driving at....

So "dog obvious"

"In the wake of the recent financial crisis, the term “macroprudential” has become a true buzzword. A core element of international efforts to strengthen the financial system is to enhance the macroprudential orientation of regulatory and supervisory frameworks. Yet the term was little used before the crisis, and its meaning remains obscure. This special feature traces the term’s origins to the late 1970s, in the context of work on international bank lending carried out under the aegis of the Euro-currency Standing Committee at the BIS. It then describes its changing fortunes until its recent rise to prominence."

For me these things are long term...Basel III or IV etc etc......and aim for stability over 5, 10 or 20 years and not say <12months....

IMF stuff, see:


other ideas, see:

David Parker's paper. 

Also robust use of LVRs, and per asset class - and my personal favourite - ban fixed rate loans, meaning the OCR would get some teeth back as and when it does get used in tandem with other measures. Maybe ban use of fixed rate loans on all but the family home or a proportion of debt on the family home related to an LVR formula.

 Steven, there are many things that could be done, but none will done until political will changes and determines to challenge the status quo.

Fat chance ....

Bernard - when will you be able to get Rick Boven in for a double-shot interview to discuss, 'A goal is not a strategy'?

Cheers, Les

Good idea Les.

I'll see if I can get him in next week. Bit swamped this week with OCR tomorrow.



Well Bernard I hope you are not swamped in mouth watering anticipation of the OCR meet

and it's potential ramifications.....that would be like turning up at a Vegan dinner party

expecting a steak.

What will be worth noting will be Bolly's response to ...."So what's the plan Doc...?..the Kiwi's

gone airborne, and that popgun your toting just won't bring the bird down."

A great Idea Les and thank you and Steven for at least giving this thread some deserved attention.....Cheers. 

I doubt Bollard knows what he wants any more. Expect blather and fluff wrapped up in cheaper for longer and longer.

Ban or part-ban fixed rate loans then the OCR wouldn't have to go so high to quell inflation pressures.

How about it?

Why not?

Who is it good for?

"This Wednesday, Douglas Carswell MP (Conservative, Clacton) will introduce legislation into the UK parliament that takes the first step towards ending fractional reserve banking. As Steve Baker MP describes:

'Douglas's Bill would assert property rights over demand deposits. Real savings - term deposits - would be loaned to entrepreneurs, delivering an economy built on save and invest.'

This would have the effect of making fractional reserve banking impossible, requiring a shift to full-reserve banking (where the bank either lends your money, or keeps it safe, but doesn't claim to do both at the same time!). In plain English, it would stop private banks being able to create money as debt.

Steve Baker MP explains this in further detail here:

I wonder if this kind of change would restrain inflation, lead to sensible interest rates, differentials, currency valuation and volatility?