15 Jun 2011

Economic recovery now expected later

5:40 am on 15 June 2011

Financial markets are factoring in a later recovery in the New Zealand economy and a start to rises in the interest rate after Monday's significant aftershocks in Christchurch.

The New Zealand dollar and money market interest rates were down on Tuesday.

Before Monday's tremors, market indicators were showing a 75% chance of a quarter of a point increase in the Official Cash Rate in December.

The OCR was lowered to 2.5% on 10 March following the devastating February quake.

Deutsche Bank economist Darren Gibbs says Government statements that some elements of the rebuild will be hastened by the latest quakes helped reassure markets.

Mr Gibbs says investors had been nervous that the aftershocks could seriously delay rebuilding in Christchurch and financial markets are now factoring in a 50% chance of a rate rise in December.

The New Zealand dollar recovered some lost ground on Tuesday and was buying US81.6 cents, up from an overnight low of US81.2 cents.

The Treasury says the Government's borrowing programme will go ahead as usual.

Finance Minister Bill English says it is obvious Monday's tremors have caused more damage in Christchurch, but it is not clear how much that might add to the cost the Government already faces from the September and February quakes.