By Cecile Lefort
WELLINGTON, Oct 9 (Reuters) - Record numbers of migrants to New Zealand are expected to put pressure on unemployment in a slowing economy, reinforcing the case for the central bank to cut rates further and keep them lower for longer.
A strong driver of economic growth in the South Pacific nation over recent years, migrants have been filling in some big gaps in the labour market as New Zealand's economy took off on the back of a commodities boom.
But as its economy slows, and a struggling China buys less of New Zealand's major dairy exports, the rush of people from India to Australia to Britain is set to ramp up the unemployment rate from its current 5.9 percent.
That in turn is expected to keep interest rates low, likely pushing them down again later this month as the central bank tries to re-energise the economy and reduce slack in the labour market.
Nick Tuffley, chief economist at ASB, sees risks of the jobless rate reaching 7 percent by 2016, which could put pressure on the Reserve Bank of New Zealand to keep cutting rates after three reductions this year took the policy rate down to 2.75 percent.
"There is a risk that the RBNZ needs to cut the cash rate below 2.5 percent," Tuffley said, giving an around 20 percent chance of that happening.
Unemployment climbed as high as 7.9 percent in the late 1990s.
In the past year, migration had a net gain of around 60,000, the highest ever, according to Statistics New Zealand data.
With a population of 4.5 million, the current arrivals are equivalent to an annual increase of about 1.3 percent. While the largest source of migrants comes from India, the data showed more expatriates returning, particularly from Australia.
In the past 12 months, New Zealand has lost just 529 people to Australia, the lowest number in more than two decades and compares to 40,000 in 2012. Australia, the world's 12th largest economy, has traditionally been a destination of choice for kiwi nationals because of its larger job market.
The return of more kiwis has also largely coincided with a strong New Zealand dollar, which earlier this year flirted with parity against its Australian counterpart, although it has faded back to A$0.9167.
Twenty-year-old Cara Piacun plans to come back to New Zealand later this month to work for her family business after an 18-month stint in a retail shop in Sydney.
"We missed the family and friends," Piacun said. "A stronger kiwi dollar helped but we had made the decision to return before the currency move."