4 May 2012

Reserve Bank may cut OCR next month - economist

12:15 pm on 4 May 2012

An economist says the Reserve Bank may cut the Official Cash Rate next month to provide extra support to the listless labour market.

Official figures show New Zealand's unemployment rate rose to 6.7% in the first three months of the year,

from an upwardly revised 6.4% in the previous quarter.

The Household Labour Force Survey released on Thursday revealed 160,000 people were officially unemployed.

An extra 9000 jobs were created, mainly part-time, but more people looked for work, driving the participation rate to a near-record high.

Infometrics economist Matt Nolan says the number of hours worked has barely picked up suggesting employers don't want to hire or extend people's hours - a clear sign of how weak the labour market is.

He says part-time employment has picked up over the last six months instead of full-time employment, and people are likely to be accepting part-time jobs when they would really like full-time ones.

Mr Nolan says the level of under-employment has also increased to around 11.3%, so there are more people wanting to work more hours than people who can't get a job.

He says it's looking increasingly likely that the Reserve Bank will cut by at least 25 basis points at the next meeting in June, although if the exchange rate falls back the Reserve Bank may decide not to cut at all.

But UBS senior economist Robin Clements says he's not convinced the figures suggest the economy needs more support.

He says the figures won't encourage the Reserve Bank to hike interest rates any earlier and it's still a reasonable distance away.

Mr Clements believes the next change will be an increase, possibly at the end of the year or early next year.