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Dairy slump set to continue, NZ central bank warns

Interest rates could be set to drop further amid a prolonged slump in dairy prices that could be set to get worse, New Zealand’s central bank warned on Wednesday


According to Reserve Bank of New Zealand governor Graeme Wheeler, the price of whole milk powder had dropped 63 percent since February 2014, putting pressure on the country’s farm-reliant economy.

“High stockpiles of whole milk powder in China, the increase in global milk supply, and the trade diversion issues involving Russia make for a very uncertain future, with the potential for further downward pressure on global dairy prices,” he said.

As the world’s largest dairy exporter, New Zealand sells around NZ$15 billion ($11 billion) worth of milk a year – amounting to a third of the country’s total exports.

There have already been two interest cuts of 0.25 percentage points each as a result of falling commidity prices, the most recent coming last week.

“At this point, some further easing seems likely,” Wheeler said, though he did not specify how much lower he expected interest rates to go.

“Some local commentators have predicted large declines in interest rates over coming months that could only be consistent with the economy moving into recession,” he added.