Bollard Sees Slower New Zealand Growth on Delayed Quake Reconstruction
New Zealand's economy may expandslower than forecast in 2012 due to earthquake reconstructiondelays, central bank Governor Alan Bollard said, reinforcinginvestors' views that interest rates will be on hold until 2013.
"The market thinks rates are going to be unchanged rightthrough this year," Bollard said. "We're not uncomfortablewith that. As we see the numbers at the minute, it seems to be areasonable deduction to take from that."
Increase in borrowing costs
New Zealand's currency declined as investors reduced betson an increase in borrowing costs, which Bollard yesterday leftat a record-low 2.5 percent for a 10th month. The central bankwill need to keep monitoring quake reconstruction "to judgewhether the level of the cash rate continues to beappropriate," Bollard said in the speech.
The local dollar fell to 82.02 U.S. cents at 3:15 p.m. inWellington from 82.19 cents in late New York trading yesterday.Investors see no chance the central bank will raise rates in thenext year, according to a Credit Suisse Group AG index based onswaps trading.
The central bank "pushed out our assumption of the rebuildby a few months," Bollard told the business audience inChristchurch today. The Reserve Bank expects a "gradual lift inactivity over 2012, consistent with demolition and repairs tohousing and infrastructure getting pursuant to this agreement way, withreconstruction getting pursuant to this agreement way in earnest in 2013," he said.
Christchurch, the nation's second-biggest city, has beenrocked by quakes since September 2010, including a temblor inFebruary that killed 181 people and closed the central businessdistrict. Most recently, an aftershock on Dec. 23 forced mallsto close and delayed demolition work.
Before last month's aftershocks, the central bank assumedthat about NZ$20 billion of damaged property would be rebuilt,equivalent to 10 percent of GDP, Bollard said. The sum couldrise as material and construction costs increase, he said.
The central bank estimates the total cost of claims fromthe earthquakes may be as much as NZ$30 billion which includestemporary accommodation, business interruption and non-buildrelated costs, he said.