Members of the New Zealand Timber Industry Federation have expressed disappointment at the Reserve Bank’s decision to hold the Official Cash Rate (OCR) at 3.5%. Sources: Scoop News, Timberbiz
President, John McVicar is questioning the logic of the Reserve Bank’s decision when a large number the economic indicators point to a need to lower the OCR.
With inflation near zero and New Zealand’s OCR being 3.5% against Australia’s 2.25%, NZ’s OCR clearly needs to move down now.
The Federation is anticipating a fall in value of the New Zealanddollar when the OCR is lowered and that would in turn bring the currency back to more workable levels.
The Federation has previously said that jobs will go and sawmills may be forced to close if the Australian dollar continues to lose value against the Kiwi dollar.
Australia is a very important market for New Zealand timber representing 21% of the value of our timber exports.
More importantly it has been a higher value market that the industry has relied on to make money.
However since 2012, the rising value of the New Zealand dollar has eroded 20% of the value of our timber sold in Australia.
Mr McVicar said there simply isn’t that sort of margin in the product and mills will now be supplying at a loss to stay in the market.
That scenario is not sustainable and will be devastating for many mills.
The effect of the exchange rate movement almost totally impacts on New Zealand sawmillers because there is very little imported content in timber so there is no countervailing effect of the exchange rate movement.
