August 18 is looming as the next big date for the New Zealand economy with the country’s central bank now expected to reveal plans for a rate hike after unemployment fell sharply in the June quarter.
The rate rise would follow an ending of its quantitative easing at the last meeting in July. Additional asset purchases under the RBNZ’s Large Scale Asset Purchase program ended on July 23.
Under the programme, the bank has bought back $NZ53.5 billion of central and local government bonds.
That decision and a change of tone in the statement released after the July meeting strongly suggested a rate rise was close.
Following the announcement, economists from all four major (Australian owned) banks forecast the RBNZ will hike the cash rate at its August meeting, rather than waiting until November as previously forecast.
If the RBNZ lifts rates it will be the an early over among major central banks to do more than just start or signal an end to support schemes such as quantitative easing (via bond purchases) or lending schemes for banks – such as the one abandoned by the RBNZ and the Term Funding facility which the Reserve Bank of Australia ended in June.
Brazil’s central bank lifted its key rate by 1% on Wednesday to 5.25% (and is tipped to repeat the move next month) to try and cap inflationary pressures building in an economy already ravaged by the ineptly handled Covid crisis, a severe drought in the south of the country (and in Argentina and Paraguay) which has slashed agricultural production and exports, and high unemployment.
That’s very different to the situation in New Zealand where it’s booming and an overheating labour market in an economy shut off to the world.
The drop in the unemployment rate from 4.6% in the first quarter firmed up expectations that the RBNZ will raise its cash rate from a record low 0.25% this month to head off rising inflation.
Statistics NZ said the number of people who were unemployed in the three months to the end of June fell by 17,000, or 12.4% over the quarter, which was a record drop in percentage terms since it began its survey in 1986.
The Australian jobless rate (before the latest lockdowns) was 4.9% in June.
Statistics NZ said the fall in joblessness was consistent with other indicators such as declining numbers of welfare recipients and reports that businesses are having difficulty finding enough workers.
Increased government spending and record-low interest rates have inflated house prices and boosted consumer demand, while the closed border has deprived industries from construction to fruit-growing of sufficient workers.
Kiwibank chief economist Jarrod Kerr said the drop in the jobless rate “all but confirms a rate hike from the RBNZ in August.”
