Signs of a softening labour market has prompted big banks to revise down their forecast official cash rate hike this month, with a 50 basis point rise now widely expected.
Data from Stats NZ showed the unemployment rate nudged higher to 3.4 percent for the three months ended December, with
modest job growth and an increase in the slack in the labour market.
It comes after the annual inflation rate held at 7.2 percent for the same period, lower than the Reserve Bank’s forecast 7.5 percent.
The big four Australian owned banks (ANZ, ASB, BNZ and Westpac) have lowered their official cash rate (OCR) forecasts for this month, now expecting a 50 basis points hike instead of 75 basis points.
BNZ head of research Stephen Toplis, said the bank now expected the OCR to peak at 5 percent, but did not expect the Reserve Bank to ease until 2024.
However, he said it was “a little premature” to be discussing when rates could be cut.
“It’s one thing saying the job market seems to be stabilising, may loosen up a bit and inflation has peaked, but they’re a long way from target.
“In a simple sense, the Reserve Bank needs inflation at 2 percent and it’s currently 7 percent plus, and it needs the unemployment rate in the order of 4.5 percent,” Toplis said.
ASB senior economist Mark Smith, said employment is still “above its maximum sustainable level” and inflation remained a major issue.
“The RBNZ is unlikely to shy away from further OCR hikes and maintaining restrictive OCR settings until it is confident it is on top of inflation.
“Conversely, downward data surprises for inflation and the labour market and the strong prospect of growing labour market spare capacity suggest less need for outsized rate hikes (of more than 75 basis points) this late in the cycle, considering that the 4.25 percent OCR is already at restrictive levels,” Smith said.
Smith said ASB also did not expect the OCR to be cut until 2024, with a peak rate of just over 5 percent.
Story Credit: rnz.co.nz