New Zealand dollar drops on interest rate cut comments

The New Zealand dollar fell on speculation the central bank will cut interest rates to help the economy recover from a deadly earthquake.

The Kiwi dollar fell 1% to NZ$0.73 against the US dollar.

Prime Minister John Key was quoted by the Bloomberg news agency as saying that he expects, and would welcome, an interest rate cut.

Estimates put the cost of rebuilding after the earthquake at close to NZ$20bn ($15bn; £9.3bn).

Sharp contrast

The Reserve Bank of New Zealand has kept interest rates unchanged at 3% since July.

It next meets on 10 March to set rates.

"The market has priced in a cut from the Reserve Bank," Mr Keys is quoted as saying by Bloomberg.

"That would probably be my expectation, that the Reserve Bank would cut, but it is for them to determine that. We'd certainly welcome it," he said.

A cut now would be in sharp contrast to many other countries worldwide which are raising interest rates to battle high inflation.

'No growth'

An earthquake measuring 6.3 on the Richter scale hit Christchurch on 22 February, killing more than 150 people.

Mr Key said the economic impact of the quake would be felt in the first half of this year.

According to Bloomberg, he said there would be "virtually no growth" in New Zealand for the year through to the end of June.

He also said that a recession in the first half of 2011 could not be ruled out.

New Zealand was almost in recession before the earthquake hit.