RBNZ Holds Rate at 2.75% in Surprise Decision as Markets Had Priced a Hike to 3.00%

The Reserve Bank of New Zealand held its Official Cash Rate steady at 2.75% on October 28, defying market expectations of a 25-basis-point increase to 3.00%. The decision sent the New Zealand dollar down more than 1% against the US dollar and nearly 2% against the Australian dollar, its steepest single-session fall versus the Aussie since 2017.

Despite the hold, the RBNZ's minutes struck a hawkish tone. All committee members agreed that additional monetary tightening is likely to be needed to bring inflation back to the 2% target midpoint over the medium term, though they differed on the significance of individual risks and the timing of any further action. Governor Breman reinforced that message after the decision, saying additional tightening may be necessary depending on how economic conditions evolve.

The committee flagged several upside inflation risks. Persistently high refined fuel costs and the weaker currency could spread price pressures more broadly through the economy, and the minutes warned that inflation expectations could become entrenched before standard indicators capture the shift, even after the two OCR increases already delivered. Global factors were cited as contributing to inflation pressures, and international developments were described as intensifying upside risks to prices. On the growth side, the committee noted that New Zealand's recovery may outperform expectations but could lose momentum if the global environment weakens.

The minutes also noted that certain domestic financial conditions have eased, reflecting currency depreciation and declining rates on some term loans, a development the committee is monitoring as it calibrates the path forward.