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The recent decline in the NZD, low interest rates, a good breaking of the drought, plus good dairy prices have left farmers in good heart at this year's national Fieldays, says BNZ chief economist Tony Alexander.
Farmers are not too concerned about the exchange rate, probably because it has fallen quite a bit against the greenback recently and because international dairy prices are high, Alexander says in his weekly update.
"Few borrowers appear aggressively concerned about interest rates apart from wanting some indication as to the proportion of their debt they should get fixed, for what term, and when.
"Farmers tend to take a longer horizon for such fixing than city folk who think an 18 month fixed rate is managing one's risk. Farmers tend toward the five year term if not seven, and I have been reminding all and sundry that this year deals mature for the many farmers who signed up 10-year fixed rates back in 2003 when rates fell sharply on the back of a cut in the Federal Reserve's funds rate to just 1%.
"I am suggesting thinking about fixing 5- 7 years for half one's debt and not trying to pick when fixed rates will rise ... because in this very uncertain world we cannot pick when the next big upward jump in fixed rates will come."
Alexander says while some farmers have asked about fixed versus floating, their queries have been outnumbered three to one by those who want to know where to invest their money in order to get a decent return.
"Most of those asking appear to have funds on term deposit currently and want a higher yield but are not prepared to chase the sort of products which caught so many people out back in the 2000s when the chooks came home to roost for so many crooked and poorly run finance companies."
Alexander says there is massive uncertainty still around the world and that sharemarkets, exchange rates, and fixed interest security prices will experience very high volatility in coming years.
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