By Lucy Craymer
WELLINGTON (Reuters) -Rising unemployment in New Zealand and annual wage growth at a two-year low reinforced expectations that the country's central bank will move to cut interest rates before the end of the year.
Statistics New Zealand on Wednesday said the nation's jobless rate rose to 4.6% in the second quarter, from an upwardly revised 4.4% in the previous three months, while employment increased 0.4% versus the prior quarter.
Economists polled by Reuters had forecast a 4.7% unemployment rate and a 0.2% contraction in employment.
While quarterly wage growth increased more than forecast, with the private sector labour cost index (LCI) excluding overtime rising 0.9%, the annual rate fell to its lowest level in two years at 3.6%.
Taken together, the wage and unemployment impulse backs market and economists expectations for the Reserve Bank of New Zealand to start cutting interest rates before year-end.
Mary Jo Vergara, senior economist at Kiwibank, said the data was just another piece of evidence proving that a pivot in monetary policy is well past due.
"The Kiwi labour market has been remarkably resilient over the past two years of restrictive interest rates. But it's important for the RBNZ to stay ahead of any further labour market slowing by proceeding with rate cuts sooner rather than later," she said.
Last month, the RBNZ held the cash rate steady at 5.5%, but opened the door to monetary policy becoming less restrictive over time should inflation slow as expected.
The central bank expects inflation to return to within 1% to 3% target range in the second half of this year, down from 3.3% in the second quarter.
The New Zealand dollar advanced slightly and was fetching US$0.5987, while the two year swap rate rose 9 bps to 4.09% and 10-yr yields were up to 4.315% from 4.185%, reflecting the slightly better-than-expected employment numbers.
"Overall, there were no real surprises for the RBNZ in these surveys," said Michael Gordon, senior economist at Westpac.
"That in itself is likely to be a disappointment for financial markets, which we suspect were looking for a result that would validate their pricing for an OCR (official cash rate) cut at next week’s Monetary Policy Statement."