UPDATE 1-NZ jobs surprise rules out rate cuts, tightening could be back sooner

 (Adds details, comment from analyst)
    By Praveen Menon
    WELLINGTON, Feb 3 (Reuters) - New Zealand's jobless rate
dropped unexpectedly and wages expanded, ruling out prospects
for further central bank rate cuts and sparking talk that
monetary tightening may be back sooner than expected.
    The seasonally adjusted unemployment rate dropped to 4.9% in
the December 2020 quarter from 5.3% in the September 2020
quarter, Statistics New Zealand said in its statement.
    That beat forecasts by economists polled by Reuters who had
expected an unemployment rate of 5.6%.
    The New Zealand dollar          rose a quarter of a cent on
the strong jobs data, as traders ruled out any rate cuts by the
Reserve Bank of New Zealand (RBNZ).
    "Thoughts of further RBNZ easing have turned to thoughts of
RBNZ tightening, via macro-prudential policy," said Jarrod Kerr,
Chief Economist at Kiwibank.
    Kerr said RBNZ has already tightened conditions by bringing
back mortgage lending restrictions from March to cool a rampant
housing market with more curbs also possible.
    Wages expanded 0.5%, compared to 0.4% growth of private
sector Labour Cost Index (LCI) in the previous quarter, bringing
annual wage growth down to 1.5%.
    New Zealand's early response to the pandemic has allowed the
economy to return to pre-pandemic normalcy. It has avoided the
high numbers of infections and deaths from the virus seen in
many other nations.
    But the government was concerned that more jobs would be
lost after the generous wage subsidy scheme ended. The
government said last week that its finances were in better shape
than expected.             
    "Our view that the labour market is set to tighten much
faster than the RBNZ anticipates is one reason why we expect the
Bank to begin raising rates by the end of next year," said Ben
Udy, Australia & New Zealand Economist at Capital Economics.
    Employment rose by 17,000 in the December quarter, up 0.6%
on the previous September quarter.

 (Reporting by Praveen Menon; Editing by Peter Cooney)