The Reserve Bank says it seems unlikely reconstruction activity will pick up in Christchurch as soon as previously expected, as aftershocks have hindered planning and building, and as private insurers hold back from insuring new buildings.
The Reserve Bank is closely watching for inflation pressures stemming from the Christchurch rebuild as part of its assessment of when to raise interest rates, and by how much. Today it left the Official Cash Rate on hold at 2.5%, and lowered its expected 90-day interest rate track into 2014 by 60 basis points, indicating the OCR would be ‘lower for longer’.
Repairs and rebuilding in the city would have a substantial influence on economic activity in New Zealand, with construction activity boosted for several years, creating resource shortages in the building industry and other parts of the economy more generally, the Reserve Bank said in its September quarter Monetary Policy Statement.
Recent reassessments of damage in Christchurch from the Earthquake Commission – which has just seen its costs blow out by another NZ$4 billion – had led the bank to increase its working assumption for reconstruction activity to cost in the order of NZ$20 billion, compared to NZ$15 billion expected in March.
“While some properties have been repaired, so far only limited rebuilding had occurred,” the Reserve Bank said in its September MPS.
“Continuing aftershocks have hindered planning and building, and made it very difficult to secure insurance for new buildings. It seems unlikely that construction sector activity will pick up as soon as was projected in the June Statement, the Reserve Bank said.
“The updated projections assume major aftershocks soon cease, allowing EQC contractors to step up repairs on moderately damaged properties from early next year. Furthermore, seismic stability would be expected to help free up the private insurance market,” it said.
“It is assumed that rebuilding of severely damaged properties gets underway from the middle of next year.”
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