WELLINGTON: New Zealand's jobless rate rose to 5.3% in the third quarter, its highest level since 2016, as employment remained unchanged, according to data released by Statistics New Zealand on Wednesday. The increase in the unemployment rate was in line with a Reuters poll and the central bank's forecast, while employment growth was slightly worse than the 0.1% rise forecast in the poll.
Ongoing weakness in New Zealand’s labour market and little wage inflation will firm the case for the central bank to cut the cash rate when it meets later in November. The New Zealand dollar hit a seven-month low of $0.5635 after the data release, before stabilising at $0.5640, while the Australian dollar hit a 12-year high against the kiwi, hitting NZ$1.1512.
Two-year swap rates eased 2 basis points to 2.5239% as markets moved to fully price in a rate cut from the Reserve Bank of New Zealand at the policy meeting later this month, with a split chance for another cut by mid next year.
ASB Bank economists said in a note that a lower official cash rate will be needed to erode the large margin of spare capacity within the labour market.
"We expect a 25 basis point official cash rate cut in November, with the risk that the OCR heads lower before it moves higher," it added.
Statistics New Zealand data showed the participation rate fell to 70.3% in the third quarter from 70.5% in the prior quarter. And wage inflation remained subdued with the private sector labour cost index (LCI) excluding overtime recording a 0.5% lift on the quarter, compared with a 0.6% increase in the prior quarter.
However, economists say while the data, as expected, was generally subdued, there are signs of improvement. "We find ourselves now in a classic turning-point situation: the lagging labour market data confirms more disinflation pressure in the pipeline, but the timelier activity data is confirming that the economy is responding to the cuts already seen," ANZ Senior Economist Miles Workman said.
The central bank has cut rates by 300 basis points since August 2024, and with inflation within its target band of 1% to 3%, policymakers have leeway to lower borrowing costs further. Economists expect the central bank to end its easing cycle in November with a final 25 basis point rate cut. - Reuters
