Unemployment stats put a stop to talk of 75bp OCR cut

Monday, 11 November 2024

Speculation about the potential for a 75-basis point cut to the official cash rate had increased in recent weeks.

But unemployment data released on Wednesday has put a stop to that.

Economists are now united in their expectations of a 50bp cut later this month.

Rising unemployment has put a stop to any talk of a 75-basis point cut to the official cash rate (OCR) before Christmas.

Instead, economists are united in their expectations of a 50bp cut when the Reserve Bank makes its final OCR announcement for the year later this month.

Speculation about the potential for a 75bp cut increased in recent weeks, with economists saying it could be on the cards if the economy showed signs of a marked deterioration.

But Stats NZ’s labour market statistics, released on last week, gave none of those signs.

The statistics showed unemployment had risen from 4.6% last quarter to 4.8% in the September quarter, largely in line with expectations, economists said.

Ting Huang, senior economist at the New Zealand Institute of Economic Research, said although the numbers showed a further softening in the labour market, there was no “smoking gun” for the RBNZ to ramp up the pace of monetary policy easing.

“We expect the RBNZ will cut the OCR by 50bp at the upcoming November meeting, as it continues its path to move interest rates to less restrictive settings.

“Beyond that, we expect a more measured pace of easing next year.”

Kiwibank senior economist Mary Jo Vergara said despite the increase in unemployment, the data was unlikely to skew the RBNZ’s thinking.

“The key takeaway is the same: the Kiwi labour market is weakening. A further relaxation in monetary policy settings is needed.

“The labour market has crumbled under the weight of the RBNZ’s heavy-handed interest rate hikes. And it’s only the beginning.”

Like the RBNZ, Kiwibank was forecasting a further increase in unemployment next year and it was important for the RBNZ to stay ahead of any more slowing in the labour market by proceeding with rate cuts sooner rather than later, Vergara said.

“With the 2% target inflation rate well within reach, we believe the RBNZ needs to get the cash rate below 4% as soon as possible.

“We continue to expect a 50bp cut at the RBNZ’s final meeting for the year, and potentially a third 50bp cut in February.”

Economists from ASB, Westpac and BNZ also expected a 50bp cut this month.

Michael Gordon, Westpac senior economist, said monetary policy no longer needed to be so restrictive, but it was a matter of the RBNZ “taking the foot off the brake, rather than stomping on the accelerator.”

“We continue to expect another 50-basis point OCR cut later this month, turning to a more gradual pace of easing over the first half of next year. “