OCR hike imminent as NZ jobless rate falls to 4%

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OCR hike imminent as NZ jobless rate falls to 4%

 OCR hike imminent as NZ jobless rate falls to 4%
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Summary 

  • Unemployment drops by 4%.
  • Wage inflation rising.
  • 25% rate hike looks imminent in the upcoming monetary policy statement.

The unemployment numbers showed a better-than-expected drop in the second quarter on the back of a strong economic recovery and the shortage of skilled and unskilled labour. With rising inflation and strong employment numbers, will the Reserve Bank of New Zealand (RBNZ) move to raise interest rates in the upcoming Monetary Policy Review? Economists are expecting a rise in interest rates as early as the 18th of August when the RBNZ gives out its Monetary Policy statement.

According to a report released by Stats NZ, the jobless rate fell to 4% from a revised 4.6% in the first quarter. Employment rose 1% as compared to previous three months.

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Employment data is an important news that the RBNZ considers before it decides to increase the official cash rate (OCR). With the latest inflation figures at 3.3% and new employment data, the expectations for an interest rate hike have only increased.

Also Read: Strong biz confidence pulls NZ interest hike expectations to Nov; NZD rises

According to a report released by Stats NZ, the jobless rate fell to 4% from a revised 4.6% in the first quarter. Employment rose 1% as compared to previous three months.

Wages increased by 2.1% in quarter ended 30 June 2021 and the average ordinary time  earnings rose 4.0 %.

Labour cost index (LCI) and salary and wages rose by 2.1%, up from 1.6% in the March 2021 quarter. The LCI captures why employers change their pay structures. Most of the companies in this quarter reported that it was due to increased inflation and effort to retain staff amidst labour shortages. This was also aided with a rise in minimum wage in April.

The report said that over half of the pay roles surveyed showed a wage increase in the year to June 2021. More than half the pay roles surveyed in the saw a wage increase in the June quarter.

Also Read: RBNZ keeps OCR unchanged but ends quantitative easing

With a fall in unemployment, the employment rate increased to 67.6%, up 0.5 percentage points on a quarterly basis.

The report also talked of under utilisation rate dwindling leading to the tightening of the labour market and thus the wage inflation.

 Economists feel that today’s figures only reinforced that the economy was robust and there was no longer any need for a monetary stimulus, and also that there should be a OCR hike in August.

Also Read: Inflation makes NZ consumers worried, new data shows price rise to 3.3%

Even the NZ dollar climbed up on the news.  

Leading bank economists and analysts are almost sure that the central bank would raise OCR to 0.5% from the current 0.25% in the upcoming meeting.

The OCR increase of 0.25% is well priced in the next policy announcement by the RBNZ and now the analysts are betting on how much will the interest rates rise till the end of the year?

Economists at the bank of New Zealand and ASB have now scaled up their expectations — they now expect three rate rises by the end of this year, taking the cash rate to 1%.

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