New Zealand central bank holds rates at 2.75% despite 22 economists expecting a hike
Key Facts
The Reserve Bank of New Zealand kept the official cash rate at 2.75% on October 28, 2026, defying expectations among most economists surveyed by Reuters. Twenty-two of 27 economists had forecast a rate hike, but the committee voted 4-3 to hold, with three members favoring an increase to 3%. After the decision, the New Zealand dollar fell as much as 1.7% to an intraday low of 0.55831 U.S. dollars. The benchmark NZX 50 fell 0.5% that day. The market reaction showed that traders were surprised by the hold, while the split vote kept tightening on the table.
Governor Anna Breman said the rate-setting committee expects further increases in the official cash rate at coming meetings. She added that the increases "could be even larger than what we said at the September meeting." Breman's remarks indicate that the hold did not end the tightening cycle, but she gave no timing for rate hikes in December or the first quarter of 2027. The bank had said further tightening was likely, while linking it to the economic outlook. The next steps therefore depend on how that outlook develops and how the committee assesses domestic pressures, rather than on an announced timetable for specific increases.
Closing data show that the New Zealand dollar-U.S. dollar pair ended trading at 0.56807 on October 27, then at 0.56253 on October 28 and 0.56189 on October 29. The pair had closed at 0.56825 on October 22 and 0.56978 on October 23, before recording 0.57014 on October 25 and 0.56812 on October 26. These readings place the currency's decline in the context of a slide that began before the decision and continued over the following two days. The intraday low of 0.55831 on October 28 was the lowest level cited in Reuters' coverage after the announcement. The New Zealand dollar later trimmed some losses, though the closing moves did not erase the decline recorded through October 29.
ANZ's business outlook survey showed a modest improvement in confidence in October, with the measure rising one point to +53. But activity components were mixed: firms' expected activity fell two points to +46, while activity recorded over the previous period rose four points to +15. The reading combines an improvement in the overall index with a decline in the expectations component, while past activity presents a stronger picture than in the previous reading. These domestic indicators leave the picture for businesses mixed as the bank assesses inflation and economic activity. The rise in confidence alone does not point to a uniform direction in companies' expectations for the coming months.
On prices, ANZ said a net 82% of firms expected their costs to rise in October, a level the bank described as very high but unchanged. Pricing intentions also rose four points, taking the net share of firms expecting to raise prices over the next three months to 52%. The bank said this was the highest share intending to raise prices since May. These indicators place cost and pricing pressures among the factors behind the rate decision, alongside mixed activity data. They remain relevant given the Reserve Bank's statement that any further tightening depends on the economic outlook.
Attention is turning to labor market statistics for the quarter ended September 2026, due on November 4, 2026. The official release covers labor market statistics for the quarter; the November 3 date in the previous draft was incorrect. The data follow the split hold and the governor's signal of possible further increases, making them among the information being watched as the economic outlook evolves. Annual inflation had declined from the previous quarter, while the bank expects it to rise again as fuel and broader price pressures increase. This places the upcoming labor data in the wider context of price and activity indicators that inform the monetary policy outlook.