NEW ZEALAND: VIEW: Less Price Pressure From Jobs Market, BNZ Expects 50bp Cut

The Q3 unemployment rate rose to 4.8% from 4.6%, lower than consensus and RBNZ expectations of 5%. BNZ believes that this lower print will be enough for the RBNZ not to “press the panic button” and cut rates on November 27 by 75bp. But the rest of the labour market data pointed to significant weakness and an economy in recession. Thus, BNZ continues to forecast a 50bp cut this month.

• There was little in the data for BNZ to change its forecasts. “Employment and the LCI were bang on our expectations. We missed on the participation rate so have adjusted our starting point for this series in our projections. The corollary to this is that we have edged down our expected peak in the unemployment rate to 5.5% (in June 2025). This is now only marginally higher than the RBNZ’s expected peak of 5.4%.”
• “Our view on wage growth and CPI inflation is unchanged therefore the same can be said for our interest rate projections.”
• “From the Reserve Bank’s perspective, we doubt whether it will view the labour market data, in its entirety, as being anything other than being broadly consistent with its August Monetary Policy Statement projections.”
• “Given the RBNZ has already cut the cash rate 25 basis points more than it had assumed in those forecasts and given that it’s likely a further cut of 50 basis points (another 25 points ahead of forecast) will be delivered later this month, we see no reason to advocate anything more.”
• “Not only does the weakness in employment indicate domestic demand conditions are disinflationary but the ongoing drop in wage inflation also indicates a reduction in inflationary pressure via lower business input cost concerns.”