Comments by Prime Minister John Key have strengthened market expectations that the Reserve Bank will cut the Official Cash Rate next week, an economist says.
Mr Key told news agency Bloomberg that, like the market, he also expects the central bank will cut the benchmark interest rate from 3% in the wake of the Christchurch earthquake on 22 February.
However, he emphasised it was up to the Reserve Bank to decide whether to act.
The New Zealand dollar slipped half a cent against its US counterpart since then. At midday it was trading at US74.2 cents.
ANZ chief economist Cameron Bagrie says the market has put a significant amount of weight on Mr Key's comments.
"Preceding those comments, the market was still expecting a 25 basis point cut by the Reserve Bank, yet after those comments the market has now firmed up and I think the rate cut is more likely to be something closer to 50 basis points ... and that led to a pretty significant market reaction in interest rates and, of course, the currency was down pretty sharply as well."
