ASB: Less-Tight Labour Market With Less RBNZ Urgency Needed

ASB note that “the Q4 labour market data confirmed that the NZ labour market ended 2022 in a tight position with employment above its maximum sustainable rate with a record high annual increase in labour cost growth. The figures were not as strong as the RBNZ, nor we, had expected. With recession looming and - importantly - net immigration picking up, the turning point for labour market pressures looks to be nearing and we envisage a growing margin of spare labour market capacity will emerge in the coming year. However, the battle on inflation is not yet won. The RBNZ is unlikely to shirk from OCR hikes and a period of restrictive monetary settings until it is confident it is on top of inflation.”

• “Risks are now skewed towards the RBNZ having to hike the OCR by less than previously thought. The need for outsized OCR hikes also looks less urgent. We now expect the RBNZ will hike by ‘only’ 50bp in February, though it remains a fine line between that magnitude and a 75bp increase. We still expect a further fine-tuning hike of 50bp in April, to an OCR peak of 5.25%. With the greater potential for the labour market to loosen, we also expect the RBNZ will eventually cut the OCR from Q2 2024, a few months earlier than previously forecast.”