New Zealand exporters are benefiting from record commodity prices, but a lot of the money is not filtering back into regional economies -- many farmers are using it to pay down debts."Our export commodity prices are at record highs -- very strong ind
New Zealand exporters are benefiting from record commodity prices, but a lot of the money is not filtering back into regional economies -- many farmers are using it to pay down debts.
"Our export commodity prices are at record highs -- very strong indeed," Reserve Bank Governor Alan Bollard said.
The strong export prices were helping reduce the nation's current account deficit, though it could also worsen again in future years.
Part of the benefits had been negated by the strong exchange rate, which cut the amount of money received at the farm gate.
Dr Bollard said some of the money which did flow back to farmers was not being spent in the local economies.
"We're finding that farmers are using these better returns to reduce debt," he told Parliament's finance select committee today, after the Reserve Bank left the official cash rate (OCR) unchanged at 3 percent.
Economic growth continued to moderate and markets were predicting the rate was now unlikely to move until March or June next year.
The RBNZ was closely watching the risk of drought in key regions.
"The pastoral industry's had a pretty good season, but that is falling away rapidly."
The bank was watching for rain in the next few week, because a dry start to next year could mean a less profitable season.
"It looks like New Zealand agriculture is rather more sensitive to drought than it used to be, as a result of higher stocking, more dairy production.
"We never used to hear about drought, as we do these days -- but farmers are running it closer than they used to."
Though the business sector was in good shape, and hadn't taken on a lot of debt, "farming did take on a lot of debt, especially in the dairy industry over the last couple of years," Dr Bollard said. "One can clearly see why farmers would want to retire some of that."
Householders, the main sector with debt, were repaying more of their borrowings, but not necessarily making gains in equity as house prices were falling at the same time.
