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Some interest rate relief forecast

Economists say interest rates may not rise as high as previously forecast following today's employment numbers.

Wednesday, February 1st 2023, 4:08PM

by Eric Frykberg

The labour market ended 2022 not as tight as expected, with the NZ unemployment rate moving slightly above record lows, and higher than previously forecasted.

BNZ economist Stephen Toplis now expects the official cash rate (OCR) to peak at 5.0%, down from an earlier forecast of 5.5%.

Other banks agree with the BNZ team that Wednesday's employment figures will ease pressure on interest rates.

Employment figures have long influenced interest rates. That is because low unemployment can boost wage increases which feed into general inflation and make the Reserve Bank reach nervously for the OCR lever.

The bank economists' utterances follow labour figures from Stats NZ which came out on Wednesday. They showed unemployment in the December quarter reaching 3.4%, up from 3.3% in the preceding quarter.

Although this number is still near historic lows, labour under-utilisation also rose, leading the BNZ to pull back its forecast for the Reserve Bank's next OCR move to 50 basis points, as well as to pull back its prediction for the OCR's final plateau.

ASB senior economist Mark Smith (pictured) had a similar point of view to Toplis saying while labour stats were well above maximum sustainable levels, the unemployment rate was slightly higher than both he and the Reserve Bank had predicted.

“Risks are now skewed towards the RBNZ having to hike the OCR by less than previously thought,” Smith wrote.

"We now expect the Reserve Bank to hike by 'only' 50 points in February, though it remains a fine line between that magnitude and a 75 point increase."

Smith expected the OCR to peak at 5.25%, while a fall in the OCR could take place in mid 2024, a few months earlier than was previously thought.

Westpac acting chief economist Michael Gordon said the figures showed the labour market was reaching its turning point three months earlier than the Reserve Bank had assumed.

“Our forecast remains for a 50 basis point increase in the OCR at the February 22 review (shaded down from 75bps after last week’s inflation figures), and another 50bp hike in April to reach a peak of 5.25%.

Kiwibank economists argued the labour market was strong for now but this would not last, and the unemployment number was heading for 5% next year. This gave the Reserve Bank “less work to do."

“There appears to be little need for the RBNZ to open the year with an aggressive 75bp hike in the cash rate,” they wrote.

“We expect the RBNZ to deliver a 50bp hike at the February Monetary Policy Statement. Looking further out, a move to 5.5% terminal rate (in the OCR) is likely to be a step too far. We expect a move to 5% (as the OCR final resting point).”

Kiwibank economists the labour market report adds to the growing list of key datapoints suggesting an end to monetary tightening is near.

"The labour market is expected to soften over the year ahead. Wholesale interest rates hit elevated levels at the end of last year.  The two-year swap rate finished 2022 at 5.4%. Market traders have had a rethink of the risks, and interest rates have declined.  The two-year swap rate is now trading close to 4.9%. That is a material move lower.  We expect the RBNZ to lift the cash rate 50bps (not 75) in February, although we believe only a 25 basis point move is needed. And we forecast a terminal rate of 5% (not 5.50%)."

"If realised, our forecast OCR trajectory suggests a two-year swap rate closer to 4.80%, declining towards 4.25% (or lower) by year-end. We have pencilled in RBNZ easing from November. So rates are likely to continue to decline from here and into 2024."

Tags: unemployment

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AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.45 7.05 6.85
ANZ 8.64 7.99 7.49 7.35
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.39 6.89 6.75
ASB Bank 8.64 7.39 6.89 6.65
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.29 6.85 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 ▼7.89 ▼7.45 ▼7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - ▼7.09 - -
Co-operative Bank - Owner Occ 8.40 ▼7.29 6.89 6.75
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 ▼7.79 7.39 7.25
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.85 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.59 7.29
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.35 7.89 7.65
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.35 6.89 6.75
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.90 7.39 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.30 7.89 7.69
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.30 8.89 8.69
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.95 7.45 7.29
SBS Bank Special - 7.45 6.95 6.79
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 7.05 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.19 7.55 7.55
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.39 6.75 6.75
Unity 8.64 6.99 6.85 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 7.15 6.85 -
Westpac 8.64 7.89 7.49 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.89 6.65
Median 8.64 7.45 7.37 6.77

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