Awwal 11, 1432 / April 15, 2011, SPA -- New Zealand's economy is on the mend weeks after a deadly earthquake and inflation will fall back into the central bank's comfort zone in the next year, Finance Minister Bill English said on Friday. In an interview with Reuters Insider television, English said confidence was rebounding unexpectedly quickly following the 6.3 magnitude quake that struck Christchurch, the country's second-biggest city, on Feb. 22. At least 166 people died. The Reserve Bank of New Zealand (RNBZ), the central bank, cut interest rates by half a percentage point to 2.5 percent last month to help cushion the blow. "There's surprising resilience. So, while it may delay a recovery by a few months, there's no doubt we're on a path to recovery and the earthquake rebuild will be part of that over the next couple of years," said English, who is attending the Boao business forum on the southern Chinese island of Hainan. English expressed confidence that underlying inflation would soon be back in the range of around 2 to 2.5 percent that it has obtained for most of the past decade. "We think over the next 12 months it will drop back to somewhere between 2 and 2-½ percent, or perhaps even lower," he said. "We don't see any reason why it would rise significantly above that. At the moment there's a perception of higher inflation because of the consumption tax increase, but over the longer term inflation's well under control," he said. The government raised sales tax last October, propelling headline inflation to 4.0 percent in the December quarter, the highest level in more than two years. The RBNZ is required to keep inflation within a 1-3 percent target band on average over the medium term, but it has said it will look through the recent policy-driven spike. Keeping a lid on prices was important to ensure the competitiveness of the export sector, which was doing well despite the headwind that a strong New Zealand dollar represents, English said. Thanks to strong commodity prices, New Zealand's terms of trade are at a 37-year high, meaning the country gets more for what it exports and pays less for what it imports. "It would be easier for us to rebalance the economy if the dollar was significantly lower. But we run a free float; we don't control it," English said. "Despite the fact that it's high, our exports are picking up pretty well on the back of these higher commodity prices. The economy's headed in the right direction," he said.
