New Zealand’s unexpected jobless-rate drop rules out rate cuts

Statistics New Zealand said the seasonally adjusted unemployment rate dropped to 4.9% in 4Q 2020 from 5.3% in 3Q last year – lower than the 5.6% forecast by economists polled by Reuters.  

As traders ruled out any rate cuts by the Reserve Bank of New Zealand (RBNZ) based on the strong jobs data, the New Zealand dollar rose a quarter of a cent. 

Kiwibank chief economist Jarrod Kerr said, “Thoughts of further RBNZ easing have turned to thoughts of RBNZ tightening, via macro-prudential policy.” 

RBNZ had already tightened conditions by re-imposing mortgage-lending restrictions last March to dampen a rampant housing market. 

Salaries increased 0.5%, compared to 0.4% growth of private sector Labour Cost Index (LCI) in the previous quarter, bringing annual wage growth down to 1.5%. 

New Zealand has managed to avoid high incidences of infections and deaths from the pandemic seen in other countries due to its early response, and this has allowed the country to recover to pre-pandemic levels. 

However, the government is concerned that more jobs would be lost after the generous wage subsidy scheme ended. Last week, the government said its finances were in better shape than expected. 

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“Our view that the labour market is set to tighten much faster than the RBNZ anticipates is one reason why we expect the Bank to begin raising rates by the end of next year,” said Ben Udy, Australia & New Zealand Economist at Capital Economics. 

Employment rose by 17,000 in 4Q 2020, up 0.6% from 3Q last year, according to Reuters.