Economists Anticipate Potential OCR Hike Following Stronger-Than-Expected Labour Market Data

Date Published: 7 February 2024

Key Facts

• Economists suggest that the probability of an Official Cash Rate (OCR) increase has gone up following strong labour market data.
• Despite rising interest rates, a slower economy, and record net migration, employment in New Zealand remained relatively stable throughout 2023.
• The unemployment rate only increased by 0.1% in the final quarter of the year, reaching 4%, lower than the estimated 4.3%.
• ANZ economist indicates that the Reserve Bank of New Zealand (RBNZ) may increase the OCR from 5.50% to 5.75% in its upcoming review on February 28.
• After the data release, the potential for an increase by midday Wednesday was priced in at 20%, up from previous 5% expectations.
• The Monetary Policy Committee at the last RBNZ meeting stated its unwillingness to accept unexpected upward economic data.
• Many economists hypothesize that the RBNZ may consider the labour data sufficient to implement the rate hike it hinted at towards the end of the last year.

Article Summary

Following the release of stronger than anticipated labour market data, some economists claim that an official cash rate (OCR) increase is now more probable. The unemployment rate in New Zealand rose marginally by 0.1% in the closing quarter of the year, totalling 4%, which falls below the estimated figure of 4.3%. Consequently, the Reserve Bank of New Zealand (RBNZ) could decide to increase the OCR from 5.50% to 5.75% at its next review on February 28, according to an economist at ANZ.

Following the data release, market traders have increased their expectation of a midday Wednesday rate boost to 20%, up from the original 5%. In the last RBNZ meeting, the Monetary Policy Committee indicated it would not anticipate any surprises in upward economic data. They stated their impatience to return inflation back to the 2% midpoint without further delays, since inflation had already been surpassing targets for an extensive period.

Economists speculate that the RBNZ could view the unexpected labour data as a trigger to increase the rate it had previously alerted late last year. However, they expect the labour market to loosen significantly in 2024, pushing the unemployment rate to over 5%. Analysts from both Westpac and BNZ support their prediction that the central bank would maintain the OCR unchanged in February, still keeping its hawkish bias.

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