NZ jobless rate jumps to 7.3%, may slow start of rate hikes; kiwi, swap rates drop

Thursday 4th February 2010

New Zealand’s unemployment rate surged more than expected in the fourth quarter to the highest in more than a decade, stoking speculation the central bank won’t rush to raise interest rates. The kiwi dollar tumbled and the two-year swap rate dropped.

The jobless rate rose to 7.3%, from 6.5% three months earlier, according to Statistics New Zealand. Economists had expected a rate of 6.8%, according to a Reuters survey. The participation rate edged up to 68.1% from 68%.

Unemployment topped the central bank’s estimate of 6.6%, giving investors cause to think Governor Alan Bollard is more likely to wait until June to raise the official cash rate from a record low 2.5%. The New Zealand dollar sank to 70.17 U.S. cents from 70.71 cents immediately before the figures were released. Two-year swaps fell to 4.29% from 4.37.

“The middle of the year could now be more like June than April,” said Keith Poore, who oversees $4 billion as head of investment strategy at AXA Global Investors in Wellington. “The plan is still to raise interest rates but maybe not in such big, meaty chunks.”

The number of people unemployed rose by 18,000 to 168,000 in the fourth quarter, the highest since June 1993. Employment fell by 0.1%, seasonally adjusted, to 2.15 million, and was down 2.4% in the year.

In annual terms, employment fell in manufacturing, retailing, accommodation, the arts, recreation and other services industries, the government statistician said. Employment in health acre and social assistance rose.

Mike Jones, market strategist at Bank of New Zealand, said there is the possibility of a “technical bounce” in the current quarter, given measures such as the participation rate had edged higher. Still, with unemployment higher than the central bank expected, “it gives them more reason to hold off on rate rises.”

Companies expecting to hire more workers in the first quarter about matched those planning to shed staff, according to a New Zealand Institute of Economic Research survey last month.

Businesswire.co.nz

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