News: New Zealand posts strong Q1 job growth, central bank seen remaining on hold

(Recasts, adds analyst comment, updates market reaction)

New Zealand's jobless rate fell close to eight-year lows in the first quarter, taking its employment rate to the rich world's second highest, but even that was unlikely to dilute the central bank's determination to keep rates on hold.

The unemployment rate dropped to 4.9 percent, just above an eight-year low of 4.8 percent hit in the third quarter of 2016. Analysts had been expecting the unemployment rate to remain unchanged from the previous quarter at 5.2 percent.

The strong result sparked a rally in the New Zealand dollar to a peak of $0.6969 from $0.6940 before the release. It steadied around $0.6950, having gained 1.2 percent so far this week.

Nevertheless the Reserve Bank of New Zealand (RBNZ) is expected to keep its official cash rate at a record low of 1.75 percent when it meets next week, and is seen as unlikely to waver in its resolve to hold rates for two years or more.

"The direct monetary policy implications from today’s figures are limited," Philip Borkin, senior economist at ANZ, said in a research note.

"The RBNZ is going to want to see clear evidence that wage inflation is lifting...before it reacts," he added.

Wages grew at a sluggish 0.4 percent on the quarter for 1.5 percent annual growth, below analysts' expectations of 0.5 percent quarterly growth and a 1.7 percent rise on the year.

The participation rate jumped slightly to 70.6 percent, just above analysts' expectations that it would stay at 70.5 percent.

Jobs growth of 0.8 percent largely due to the accommodation, food services and construction sectors taking on workers to service the country's tourism and building booms.

The employment rate, which rose 0.3 percentage points to 67.1 percent, was the second-highest among members of the Organization for Economic Cooperation and Development.

But none of this is expected to influence RBNZ monetary policy. The bank has cut rates seven times in the last two years to tackle low inflation and to ease fears of growing global protectionism which could damage New Zealand's small, open trading economy.

"For the RBNZ, they will be pleased but they appear to be on hold and more focused offshore with potential risks," said Michael Turner, strategist at RBC Capital Markets.