Information only disclaimer. The information and commentary in this email are provided for general information purposes only. We recommend the recipients seek financial advice about their circumstances from their adviser before making any financial or investment decision or taking any action.

As you can see, the rates have ranged from as low as 2.76% to as high as 7.67%.

We’ve also added in a five and 10-year average line for each period.

Despite that drama, the 10-year average floating rate sits remarkably close to 5.00%.   Even the five year average for this type of borrowing customer is now 5.27%.  

That simple fact offers a few important lessons and some timely insights for how banks and farmers alike think about rural lending.

The surface volatility and the underlying calm.

If you were running a farm business in 2019 or 2021, a 2.76% interest rate likely felt like a dream. If you were in the same seat in 2023 when rates touched 7.67% (and for the average farmer; 8.5% +), that dream turned into a budgeting headache. But across the full 10-year stretch, the floating rate has averaged out near 5.00% not far off from where it is today.

There’s a calming message in that: despite the shocks and uncertainty, interest rates often revert to a mid-range norm. It’s a lesson in not overreacting to extremes and in building a business model that can handle both ends of the cycle.

The psychological toll of rate swings.

However much we like to say it, we still all struggle to operate in “averages”. Cashflow strain is very real when interest costs double within 18 months, as they did post-2021 (or triple over 36 months up to 2023!).

Confidence across the sector tends to swing in sync with borrowing costs. When rates spike, we see:

• Deferred investment in land development or growth
• Reduced risk appetite for new ventures or expansions
• A tendency to bunker down and conserve cash, sometimes even at the cost of long-term opportunity.

Even those who “should” be insulated by strong equity or cashflow feel the chill. This is less about pure economics and more about psychology. High interest rates make farming feel more fragile and less secure. When confidence wobbles, so does the broader agri-economy.

Are bank stress tests then too harsh?

A common frustration we hear from farmers is the rigid stress testing applied by banks, often assuming interest rates of 7% to 9% when assessing affordability. On the surface, that seems prudent. But when you look at the data, it's clear these levels are outliers, not the norm.

From their perspective this is a responsible move designed to ensure borrowers can withstand rate shocks and that capital is deployed prudently in a volatile environment. But from the farmer’s side, this can feel overly conservative, especially when data shows the long-term average rural floating rate sits around 5% with peaks above 7% being brief and rare.

The challenge lies in finding the middle ground. Farmers need to be able to demonstrate resilience at higher rates, but banks also need to apply stress tests that reflect realistic not just extreme scenarios.

But there’s no doubt that bank appetite took a hit during this period.

It’s clear from the last few years that bank appetite for rural lending tightened just as rates peaked. High interest rates increase the risk of borrower stress, particularly in sectors like farming where income can be seasonal and volatile. At the same time, regulatory capital requirements for agri lending remain higher compared to housing, meaning banks must hold more capital per dollar lent. As rates rose and risk perception climbed, many banks became more selective—prioritising lower-risk clients, tightening conditions, or deferring approvals altogether. For farmers, this meant that even well-performing businesses found capital harder to access, particularly for expansion or restructuring.

Banks also have to account for uncertainty, the risk that interest rates, even when already high, could climb further or stay elevated for longer than expected timeframes. At the time, it wasn’t clear whether the peak had been reached. In hindsight, we now know this was part of a typical rate cycle, but that clarity only comes after the fact.

Lessons for farmers.

So, what can farmers take from this decade-long rate chart?

1. Plan for the range, not the moment.

Your financing strategy should be robust at 4%, 6%, and 8%—not just at today’s rate. Structure matters. Consider having a portion of your debt fixed at any one time or maintain headroom in your cashflows to deal with the outcomes of these higher rates. And know your breakeven points, not just for milk or meat prices, but also for interest rate movements.

2. Use low-rate periods to get ahead.

When rates drop below the long-run average, that’s your opportunity to bank gains, pay down principal and build buffers—not to inflate operating costs or lift personal drawings. The farms that did this during 2019–2021 are the ones weathering the current environment with the most confidence. But that doesn’t mean you should play catch up with items like deferred maintenance, just make sure its measured.  

3. Know your bank’s view of you.

If your bank isn’t regularly stress-testing your debt position, you should be. Be proactive in demonstrating how your business would perform at higher rates. Use tools, advisors, or partners who can help you “tell your story”, clearly. That makes a real difference when funding is tight.

A final thought: volatility isn’t going anywhere.

The last decade of rates reflects more than just monetary policy, it reflects a world grappling with pandemics, inflation shocks, geopolitical tensions, and changing regulatory environments. None of these things are likely to go away.

But volatility doesn’t have to mean chaos. With good strategy, strong relationships and the right capital structure, it’s possible to navigate through the swings. As the chart shows, rates may spike, but they also settle.

In the meantime, the smartest farms and the most supportive lenders are those who focus on long-term fundamentals, not short-term panic.

At NZAB, we’re here to help farmers understand and navigate that balance. Whether you're seeking capital, refinancing debt or simply wanting to sanity-check your setup, our team is available to support you. We know every rate, every bank and how they operate and we’re proud to apply that insight for the benefit of our farmers.

If you want to have a no obligation chat, feel free to call one of our local team members in Southland, Canterbury, Manawatu, Taranaki or Waikato  (or flick us a quick email here)

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