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Interest rate decision right call for farmers

2 August 2011

The National Farmers’ Federation (NFF) has welcomed today’s announcement by the Reserve Bank of Australia (RBA) that interest rates will remain steady at 4.75 percent for the ninth consecutive month.

NFF President Jock Laurie says the RBA’s decision is the right one for farmers given the recent unease in global financial markets in the wake of the US Congress deliberations on the debt ceiling.

“It remains to be seen exactly what impact the US Congressional delays on raising the debt ceiling will have on the US, and subsequently the world’s, cost of credit,” Mr Laurie said.

“Now would not have been the time to pre-empt the result and lift the official cash rate with this black cloud hanging over global markets.

“Australian farmers are more exposed than most to movements in interest rates, due to the high amount of debt already facing the agricultural sector.

“Rural debt has grown by a massive 85 per cent since 2002-03 and is now sitting at over $60 billion due to a decade of drought followed by floods and cyclones, and significant rebuilding costs. This has placed the agricultural sector at considerable exposure to increasing credit costs,” Mr Laurie said.

“At the same time, any movement in interest rates also places upward pressure on the Australian dollar.

“According to NFF analysis, every one percent appreciation in the Australian dollar deflates farm incomes by approximately $220 million in raw terms. This has been the single most critical issue for Australian farmers in recent times, with the Australian dollar now valued at over 110 US cents – a post float record high.

“The impact of interest rates on the Australian dollar cannot be ignored and while strong agricultural commodity prices have masked some of this impact, it is eating into the profit margins of farmers at a time when they are looking to rebuild.

“Australian farmers are heavily exposed to international markets and are nearing breaking point where their competitiveness will be unable to be sustained under the strength of the Australian dollar,” Mr Laurie said.

The NFF Agribusiness Loan Monitor for August will be released later this month, tracking the commercial banks response to the RBA official cash interest rate announcement.

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Media Enquiries: Ruth Redfern on 02 6269 5666, 0408 448 250 or .

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