Forest owners concerned about high interest rates

11 Jun 2009

Unacceptably high bank interest rates are putting the owners of small to medium-sized forests under increasing financial pressure.

“It is a disappointing that the Reserve Bank has chosen not to cut the official cash rate (OCR) today. A reduction would have put pressure on the trading banks to reduce their lending rates and discouraged speculation in the New Zealand dollar,” says NZ Forest Owners Association president Peter Berg.

“As the governor Alan Bollard said in his official statement today, a stronger dollar at a time of weak global growth risks delaying or even reversing the prospects of an export-led recovery. The only consolation is that he has not ruled out modest reductions in the OCR in coming months.

“Given that the Kiwi strengthened by over a cent in the hours following Bollard’s announcement, the governor would have been better to say nothing, rather than add to the damage inflicted on exporters.”

Mr Berg says that if continuing high interest rates lead to further increases in the Kiwi dollar – some commentators are talking about it reaching US70 cents – New Zealand forests will be very quiet indeed.

“With the Kiwi dollar at US62c, harvesting is viable for owners of larger forests in areas where the industry is well-established. Indeed in the last four or five months harvest volumes from these forests and export shipments have been at record levels,” he says.

“But for smaller to medium growers, especially those with plantations in newer or less accessible areas, harvesting is at best a marginal exercise and many are voting with their feet. They are leaving their trees in the ground.”

Mr Berg says banks should be passing on to their business and farming customers a greater share of recent falls in official interest rates. A 6 per cent margin between the official cash rate (OCR) and commercial lending rates is “unacceptable”.