The Reserve Bank’s focus is now shifting from Auckland housing to a dairy industry that increasingly looks as though it is in deep trouble

.Just a day after Bill English described the outlook for dairy over the next few months as “grim” and Fonterra announced hundreds of layoffs, the Reserve Bank says that with a 30% decline in dairy prices over the past year one in every four dairy farmers is currently making a loss.

And what worries the Bank is that dairy farmers owe a massive $30 billion to banks.

And half of that debt is owed by only 20% of farmers.

Last month it warned that “financial stress in the dairy sector could rise markedly if low global dairy prices persist beyond the current season.”

However it is forecasting prices to recover by as much as 15% over the next year.

And Reserve Bank Governor Graeme Wheeler said yesterday he believes the lowering of the Official Cash Rate to 3.25% will positively impact dairying in two ways.

“One is the exchange rate impact that potentially lies ahead,” he said.

“And secondly the cut in floating interest rates.”


The Bank has already acted to try and curb Auckland housing prices with higher loan/value ratios for house lending in the city along with a reduction in the amounts and with b lowering the so-called speed limit on bank lending which means banks can lend fewer loans to people with low deposits.

The Government has also stepped up with a tightened capital gains tax on investor housing.

But interestingly, Mr Wheeler told a Parliamentary Select Committee yesterday that he expected the foreign buyers’ “register” might have the biggest impact.

The Government has consistently refused to use the word “register” to describe its tighter tax requirements for foreign property buyers probably because Opposition parties have been calling for it to introduce one.

However what Mr Wheeler said implies that the Bank believes that foreign buyers are helping boost Auckland property prices.

However he wants Auckland price rises to slow right down.

“I would like to see house price inflation in Auckland moderate over time to grow less than the rate of growth in income,” he told the Finance and Expenditure Committee.

Green MP Russel Norman interrupted to say: “Which is currently less than 2%”.

But Mr Wheeler explained that he didn’t just mean wage inflation but growth in all income across the economy which he said was four to five percent.

That would bring Auckland price rises which were 16% over the past year down to the average for all New Zealand over the past year.

At his press conference, Mr Wheeler was asked where he would like to see the New Zealand lower.

“We’d like to see it lower,” he said. 

Understandably he wouldn’t be specific but quoted a recent study by the Washington-based Peterson Institute for International Economics which suggested the New Zealand dollar was over-valued by seven percent.