February 22nd, 2011
08:12 AM GMT
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(CNN) – As rescue crews continued to search through the rubble for survivors of the deadly Christchurch earthquake, Tuesday’s temblor already has shaken confidence in New Zealand’s fragile economy.

The New Zealand currency, known as the kiwi, dropped about 2% in trading in the hours following the quake, which struck in the early afternoon in the country’s financial center and second largest city. The earthquake comes just five months after a nighttime earthquake hit the city, causing $3 billion damage to the area but no deaths. Tuesday’s quake was centered closer to the city and shallower than the September quake, causing more damage and deaths during the busy lunchtime hour when it struck.

“Whatever rebuilding that was going to occur [after the September quake] was only just getting started, so you have to presume that process has to start all over again,” said Michael Turner, a strategist at RBC Capital Markets in Sydney.

New Zealand’s economy was already limping after credit ratings agencies put the government on negative watch late last year due to growing debt. New Zealand was hit hard by the financial crisis with high levels of government and household debt. The government has promised an austere budget and the sale of state assets to return the government’s budget to a surplus by 2015.

Citibank Group had forecast that the Reserve Bank of New Zealand would increase interest rates this year, but Citibank economist Akash B. Reddy believes the new earthquake makes any interest rate hike unlikely until the latter half of 2012. “We may even see an interest rate cut,” Reddy said.

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