18 Oct 2011

Quake rebuilding delays tipped to reduce inflation pressure

6:40 pm on 18 October 2011

Reserve Bank Governor Alan Bollard says delays to rebuilding in Christchurch will help to reduce pressures on inflation.

He spoke about the lessons learnt from the Christchurch earthquake at a conference in Wellington on Tuesday.

Dr Bollard said earthquake rebuild is likely to cost $20 billion and boost economic growth by 1% to 2% in the medium term.

He said the rebuild will be so big that there's a strong likelihood of bottlenecks, skill shortages and buildups which could lead to a significant rate of inflation.

But Dr Bollard says recent aftershocks and further delays to the rebuild will help to take the pressure off.

He says, because of the delays, planners, builders and financiers have been able to plan well ahead for what will happen and that will prevent bottlenecks.

The Reserve Bank lowered the Official Cash Rate by 50 basis points after February's earthquake, but Dr Bollard says it would be inappropriate, all else being equal, for monetary policy to be stimulatory during the reconstruction period.

Dr Bollard said the Reserve Bank learned that some earthquakes can't be thought of as short, sharp event, but a rolling set of shocks with aftershocks that continue for some time.

He says the bank's main office in Wellington should be able to withstand a big earthquake, but it has set up an Auckland office to carry on core functions, should it ever become inaccessible.