New Zealand Jobless Rate Drops to 4%, Fueling Rate-Hike Bets
(Bloomberg) -- New Zealand’s unemployment rate fell more than forecast in the second quarter as the economy’s recovery boosted hiring and began to stoke wage inflation. The kiwi dollar rose as traders bet the central bank could increase interest rates in two weeks.
The jobless rate fell to 4% from a revised 4.6% in the first quarter, Statistics New Zealand said Wednesday in Wellington. Economists expected 4.4%. Employment rose 1% from the previous three months. Private sector, ordinary time wages increased the most in 13 years.
The labor market report is the latest sign that the economy is growing faster than its capacity, and that the Reserve Bank could start to raise the official cash rate to keep a lid on price pressures. Annual inflation surged to 3.3% in the second quarter, breaching the central bank’s 1-3% target range.
“We’ve flown past full employment, and the economy is becoming quite overheated,” said Sharon Zollner, chief economist at ANZ Bank New Zealand in Auckland. “The RBNZ needs to hike the OCR promptly to get on top of this.”
The kiwi dollar climbed after the report. It bought 70.58 U.S. cents at 2:45 p.m. in Wellington from 70.24 cents immediately before the release. Two-year swap rates rose 11 basis points to 1.25% -- the highest since late 2019.
1% Cash Rate
Investors lifted bets on rate increases, with a quarter-point hike now fully priced in for the RBNZ’s next review on Aug. 18 and at least one more expected by the end of the year. Economists at ANZ, ASB Bank, Bank of New Zealand and JPMorgan said they now expect three rate rises this year, taking the cash rate from 0.25% to 1%.
“The data show the RBNZ is well behind the curve. Things are only going to get tighter,” said Stephen Toplis, head of research at BNZ in Wellington. “Is a 50-point hike possible in August? It’s not our central view but not a zero chance.”
The RBNZ, which is required to support maximum employment as well as achieve price stability, began reducing monetary stimulus last month by ceasing quantitative easing, saying economic conditions since late 2020 had been consistently stronger than anticipated.
Yesterday, Governor Adrian Orr said spending has recovered to above pre-Covid levels and the Monetary Policy Committee “needs to think about when and how we would return interest rates to more normal levels.”
New Zealand is in the vanguard of developed-world central banks that are beginning to normalize policy and is set to become one of the first to raise rates in the wake of the pandemic. South Korea has also signaled it could lift borrowing costs this year.
Still, the Federal Reserve last week indicated there is some way to go before it starts to scale back bond buying, while Australia yesterday said it doesn’t expect to raise rates before 2024.
Employment rose for a third straight quarter after slumping in mid-2020, and also gained 1.7% from a year earlier. Economists had forecast 1.2% annual growth. The participation rate increased to 70.5% from 70.4% in the three months through March, matching economists’ projection.
Statistics New Zealand said the underutilization rate, which is a broader gauge that includes employed persons seeking additional hours, fell to 10.5% from 12.1% in the first quarter.
Ordinary time wages for non-government workers rose 0.9% in the quarter, the most since 2008, the statistics agency said. From a year earlier, wage growth picked up to 2.2% from 1.6% in the 12 months through March.
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