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March 10, 2011    

New Zealand lowers interest rates

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by Kay Murchie

New Zealand’s central bank has today lowered interest rates as the economy attempts to rebuild itself after last month’s earthquake in Christchurch.

Earlier this month, the country’s Finance Minister Bill English warned that the earthquake will impact negatively on economic growth.

Mr English believes the 6.3 magnitude quake could push the nation into recession as Christchurch, which is New Zealand’s second largest city, accounts for approximately 15% of the country’s economy.

Costs relating to the disaster could hit NZ$15 billion (£7 billion).

New Zealand’s economy contracted in the June to September quarter last year and the Finance Minister believes fourth quarter growth figures will be “pretty flat” – figures are due later this month.

Meanwhile, a similar warning was made by Australia after floods and cyclones are set to hit first quarter economic growth.

Australia’s Treasurer Wayne Swan warned that the economy could contract in the January to March period due to the disasters, which led to a fall in coal and agricultural exports.

Meanwhile, returning to the Reserve Bank of New Zealand, it cut the key interest rate 0.5 points to 2.5%.

Analysts expect the central bank to hold rates at this level until at least 2012.

In a statement today, Reserve Bank Governor Alan Bollard said: “We have acted pre-emptively in reducing the OCR (official cash rate) to lessen the economic impact of the earthquake and guard against the risk of this impact becoming especially severe.”

Interest rates have been on hold at 3% since April 2010. However, Mr Bollard added that today’s move is considered a “one-off” but it will be guided by economic data.

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