ISSUE
Friday, October 23, 2026
Volume 17 . Issue 42
The Reserve Bank (RBNZ) shocked by holding its benchmark interest rate unchanged in a split decision but left the door open for further rate rises to counter stronger inflation.
The official cash rate (OCR) was left at 2.75 percent, defying overwhelming expectations of a rise by financial markets and economists.
The central bank's Monetary Policy Committee (MPC) acknowledged stronger inflation pressures, economic uncertainty, and restated its determination to get inflation back to the desired 2 percent target.
"Annual inflation is expected to increase to 4.4 percent in the December quarter, largely reflecting current futures prices for fuel. Near-term inflation forecasts are uncertain given volatility in prices for oil and refined fuels," it said in a statement.
However, the MPC could not agree on how serious the near term threat was.
"All Committee members agreed on the overall outlook for inflation. However, members differed in how much weight they placed on various risks and the timing of the monetary policy response."
Governor Anna Breman sided with the three external members of the MPC to keep the cash rate on hold, while the other three members -- all RBNZ senior officials -- voted to raise the cash rate.
It had signalled in the September monetary statement that a pause was likely at this meeting, as it assessed the impact of its previous rate rises and the outlook for the economy.
"The Committee agreed that tighter monetary policy is likely to be required but remains conditional on the economic outlook."
The decision raises the prospect of a rate hike in the December monetary policy statement.
The New Zealand dollar plunged the best part of a cent against the US dollar to just under 56 cents.
The Reserve Bank (RBNZ) shocked by holding its benchmark interest rate unchanged in a split decision but left the door open for further rate rises to counter stronger inflation.
The official cash rate (OCR) was left at 2.75 percent, defying overwhelming expectations of a rise by financial markets and economists.
The central bank's Monetary Policy Committee (MPC) acknowledged stronger inflation pressures, economic uncertainty, and restated its determination to get inflation back to the desired 2 percent target.
"Annual inflation is expected to increase to 4.4 percent in the December quarter, largely reflecting current futures prices for fuel. Near-term inflation forecasts are uncertain given volatility in prices for oil and refined fuels," it said in a statement.
However, the MPC could not agree on how serious the near term threat was.
"All Committee members agreed on the overall outlook for inflation. However, members differed in how much weight they placed on various risks and the timing of the monetary policy response."
Governor Anna Breman sided with the three external members of the MPC to keep the cash rate on hold, while the other three members -- all RBNZ senior officials -- voted to raise the cash rate.
It had signalled in the September monetary statement that a pause was likely at this meeting, as it assessed the impact of its previous rate rises and the outlook for the economy.
"The Committee agreed that tighter monetary policy is likely to be required but remains conditional on the economic outlook."
The decision raises the prospect of a rate hike in the December monetary policy statement.
The New Zealand dollar plunged the best part of a cent against the US dollar to just under 56 cents.
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