Rising Unemployment in New Zealand

By Lucy Craymer

WELLINGTON (Reuters) – Rising unemployment in New Zealand and annual wage growth at a two-year low reinforced expectations that the country’s central bank will cut interest rates before the end of the year.

Statistics New Zealand on Wednesday reported that the jobless rate rose to 4.6% in the second quarter, up from an upwardly revised 4.4% in the previous three months, while employment increased by 0.4% compared to the prior quarter.

Economists polled by Reuters had predicted a 4.7% unemployment rate and a 0.2% contraction in employment.

Although quarterly wage growth exceeded forecasts, with the private sector labour cost index (LCI) excluding overtime rising by 0.9%, the annual rate fell to its lowest level in two years at 3.6%.

Together, the wage and unemployment indicators support market and economist expectations for the Reserve Bank of New Zealand to start cutting interest rates before the year’s end.

Mary Jo Vergara, senior economist at Kiwibank, noted that this data is more evidence that a pivot in monetary policy is overdue. “The Kiwi labour market has been remarkably resilient over the past two years of restrictive interest rates. But it’s crucial for the RBNZ to stay ahead of any further labour market slowdowns by implementing rate cuts sooner rather than later,” she stated.

Last month, the RBNZ maintained the cash rate at 5.5%, but indicated that monetary policy could become less restrictive if inflation decreases as expected.

The central bank anticipates inflation to return to within the 1% to 3% target range in the second half of this year, down from 3.3% in Q2.

The New Zealand dollar advanced slightly, trading at US$0.5987, while the two-year swap rate rose 9 basis points to 4.09%. Additionally, 10-year yields increased to 4.315% from 4.185%, reflecting the better-than-expected employment figures.

Michael Gordon, senior economist at Westpac, commented, “Overall, there were no real surprises for the RBNZ in these surveys. That likely disappointed financial markets, which were anticipating results to justify their projections for an OCR cut at next week’s Monetary Policy Statement.”