New Zealand jobs data show the central bank may not cut rates any further

Unemployment in New Zealand fell unexpectedly and wages rose, outperforming expectations for further cuts in central bank rates and led to talk that cash squeeze could be back sooner than expected.

The quarterly adjusted unemployment rate fell to 4.9% in the fourth December 2020 from 5.3% in the fourth September 2020, Statistics New Zealand said in its statement.

That beat forecasts by economists surveyed by Reuters that expected an unemployment rate of 5.6%.

The New Zealand dollar rose a quarter of a percent on the strong jobs data, as traders eliminated any rate cuts by the Reserve Bank of New Zealand (RBNZ).

“Thoughts on easing RBNZ as well as turning to thoughts on tightening RBNZ, through a macro-prudential policy,” said Jarrod Kerr, chief economist at Kiwibank.

Kerr said RBNZ has already tightened position by reversing mortgage lending restrictions from March to cool the rampant housing market with more potential loops as well.

Wages expanded 0.5%, compared to the 0.4% growth in the Private Sector Labor Cost (LCI) Index in the previous quarter, bringing annual wage growth down to 1.5%.

New Zealand’s early response to the pandemic has allowed the economy to return to pre-pandemic normalcy. It has avoided the high rates of infections and deaths from the virus seen in many other countries.

But the government was worried that more jobs would be lost after the generous wage subsidy scheme ended. The government said last week that its finances were in better shape than expected.

“Our view is that the labor market is set to tighten much faster than the RBNZ expects. One reason is that we expect the Bank to start raising rates by the end of next year,” he said. Ben Udy, Australian & New Zealand Economist at Capital Economics.

Earnings rose 17,000 in the December quarter, up 0.6% on the previous September quarter.