Christchurch earthquake jolts NZ economy

Who would have believed that Christchurch could be hit by yet another earthquake but this time taking many lives – a tragic day for Christchurch and New Zealand.

Not surprisingly estimates of the rebuiding operation are in excess of the $4bn that has been projected for the September earthquake. The NZ$ dropped by more than a cent against the US and finished the day below US$0.75. This is on the back of Fonterra announcing an increased payout to farmers.

The earthquake could also mean pressure on the Reserve Bank to loosen monetary policy (cut interest rates) to brace the economy which may have slipped back into recession at the end of 2010. Some economists have said that it may wait till December before tightening monetary policy. Remember that the OCR at 3% is considered to be stimulatory but one wonders what the neutral rate is – when neither stimulatory nor contractionary – maybe 4%.

Although the NZX-50 dropped 23.2 points to 3358.7, shares in Fletcher Building rose yesterday – they are managing the repairs to buildings damaged by the September earthquake.

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