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Agribusiness rates steady, but US debt crisis looms

26 July 2011

Agribusiness loan rates for the month of July have remained steady, according to the latest Agribusiness Loan Monitor released today by the National Farmers’ Federation (NFF).

Chair of the NFF Economics Committee, John McKillop, said that agribusiness loan rates by the major banks and other financial lenders have not moved during July as the Reserve Bank of Australia (RBA) maintained interest rates at 4.75 percent for the eighth consecutive month.

“The agribusiness loan rates for this month reflect, as they rightly should, the lack of movement in the RBA official cash rate,” Mr McKillop said.

But Mr McKillop warns that farmers and rural businesses should not be lulled into a false sense of security by the lack of movement in rates to date.

“The Australian financial market is very heavily exposed to overseas forces, and the looming debt crisis in the US may have negative impacts on the interest rates and ultimately agribusiness loan rates here at home,” Mr McKillop said.

“The US Congress has until 2 August to reach an agreement on lifting its debt ceiling – ironically, the same day as the RBA next sits to discuss Australia’s interest rates.

“A failure by Congress to reach this agreement would force the US to default on an interest payment on its debt, not only ruining the top-rated credit reputation the US has held for past the 94 years, but also possibly causing a domino effect from the default leading to higher interest rates across the world.

“A loss of investor confidence in the US could potentially raise interest rates quite significantly, which would be devastating for Australian farmers carrying record levels of debt after a decade of drought, followed by floods and cyclones.

“There’s no certainty on how the global markets will react should the US default on its debt – but the impact of the cost of credit is a major concern for small businesses and farmers. We certainly hope that the US President is able to broker a deal in time,” Mr McKillop said.

The July NFF Agribusiness Loan Monitor is available below and via the NFF Publications page

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