Economists give predictions for next 18 months
The Q2 labour market report released by Stats NZ has “all but confirmed” a rate hike in August, according to Kiwibank chief economist Jarrod Kerr, who noted that the unemployment rate is 0.6% below the RBNZ’s estimate of 4.6% - a sure sign that the labour market is tightening.
“In a remarkable nine months, the Kiwi labour market has returned to levels indicative of full employment,” Kerr said.
“The strength in the labour force reflects the underlying strength in the economy, and highlights the adaptability of Kiwi businesses. A 4.0% unemployment rate is a fantastic outcome, and provided we make our way through 2021 without any major lockdowns, we’re firmly fixated on the light at the end of the tunnel.”
Read more: Reserve Bank to tighten mortgage lending rules
Kerr said that the housing market has also “set the tone” for recovery, with Kiwibank’s regional heat map showing growth in every region.
“The radiant heat generated by New Zealand’s current recovery emanates from the housing market,” Kerr said. “And the heat from the housing market is spreading to other areas of the economy, such as construction and retail sales.”
“The housing market has set the tone for a heady recovery,” he added.
“But it will also set the tone in the regions in the months ahead. Activity and the rate of house price growth looks set to cool, and so too will our regional heat map.”
ASB senior economist Jane Turner said that the Reserve Bank “needs to lift the OCR off emergency settings,” and is forecasting three successive rate hikes in August, October and November.
Read more: What will the Reserve Bank look for before raising the OCR?
She said it will need to consider the economic impact of rising interest rates for any decisions beyond 2021, but expects that the OCR will keep rising throughout 2022.
“We expect the RBNZ to raise the OCR by 25bps in each of the next three OCR review dates, returning it to pre-pandemic levels (1.0%) by the end of the year,” Turner said.
“Until the border restrictions can be safely eased, our labour supply will struggle to meet the demand generated by New Zealand’s resilient economy, and the RBNZ has no option but to limit demand growth in order to keep inflation pressures in check.
“Beyond this year, we expect the RBNZ will lift the OCR at a slower pace. We expect the OCR will stabilise at 1.5% by the end of 2022.”
