The Reserve Bank of New Zealand held the official cash rate at 2.75 percent on Wednesday, October 28, in a decision that surprised money markets, which had considered a further hike a near certainty. The Monetary Policy Committee voted 4 to 3 to hold, with Anna Breman, Carl Hansen, Prasanna Gai and Rebecca Williams in favour of pausing and Paul Conway, Hayley Gourley and Karen Silk voting for a 25 basis point increase to 3 percent. All members agreed that tighter monetary policy is likely to be required, but remains conditional on the economic outlook.
Markets had priced nearly 90 percent for a hike at this meeting, after September quarter inflation and building core price pressures moved the major bank economists to hike calls, so the hold landed as the outcome this site’s week ahead identified in advance as a surprise: one that would contradict the pricing almost completely and drop the New Zealand dollar. The currency did fall, sliding below 0.5600 against the US dollar and posting its largest drop against the Australian dollar since 2017, Bloomberg reported.
The case for pausing, in the committee’s own summary record, is that the pass through of the fuel price surge has so far been smaller than assumed. Headline inflation was 3.7 percent in the September 2026 quarter, above the committee’s 1 to 3 percent target range but slightly lower than expected and down from 4.1 percent in the June quarter, tradables inflation fell from 4.9 percent to 4.3 percent, and medium term inflation expectations remain anchored with wage growth subdued. The four members in the majority judged that the two recent OCR increases allow the committee time to assess their effects, and emphasised the risk of a weak recovery in household consumption and investment, with unemployment still around its highest level in 11 years, Dow Jones reported.
The three members who voted to hike argued that core inflation has sat above levels consistent with the target mid point for some time, raising the risk that inflation becomes entrenched in price setting as higher freight and shipping costs endure, and that acting now would reduce the risk of needing to do more later. The committee expects annual inflation to rise to 4.4 percent in the December quarter on current oil futures prices, and said information arriving over the next six weeks could change the appropriate stance in either direction: further tightening if domestic pricing pressures fail to moderate, a continued hold if they stay subdued, and easing if the global economy turns sharply down. The next decision comes with the December Monetary Policy Statement, which will include updated forecasts.