The Reserve Bank of New Zealand has cut the official cash rate (OCR) by 0.25% to 3.50%. The reduction means the OCR has now fallen by 2.0% from its peak of 5.50%.
On Wednesday, Statistics NZ released the Q1 2025 labour force report, which showed modestly higher employment, with the unemployment rate holding at 5.1%.
As illustrated below by Justin Fabo from Antipodean Macro, the unemployment rate is tracking a little better than forecast by the Reserve Bank:
However, New Zealand’s labour underutilsation rate continued to rise in Q1 2025:
Total hours worked in New Zealand declined in Q1 as lower average hours worked more than offset the small rise in employment:
Labour costs have also fallen by more than the Reserve Bank forecast:
Major bank ASB noted that the “figures confirmed further labour market softening despite the steady unemployment rate”.
“Overall employment levels were up fractionally over Q1, but firms significantly cut back on full-time hiring in Q1, with the NZ economy shedding a net 20k jobs over the March 2025 year (-0.7% yoy)”.
ASB also tipped 0.75% more OCR cuts this calendar year by the Reserve Bank:
“Our expectation is that the labour market will remain soft for much of 2025. Overall employment levels are expected to remain flat until an economic recovery unfolds later this year”…
“Labour cost growth is also expected to slow as inflation cools and as firms seek to contain the wage bill”…
“With inflation comfortably within the 1-3% target band and with monetary conditions still restrictive, the weak economic backdrop necessitates further OCR cuts”.
“We envisage an additional 75bps of OCR cuts over 2025 as the RBNZ pivots from acting to slow the economy to supporting it”.
