28 October 2026 · Monetary Policy Review
The RBNZ caught the market leaning the wrong way. It held the Official Cash Rate at 2.75%, with four members voting to wait and three backing a hike to 3.00%. A hike had been almost fully priced, at roughly 93% probability. NZD/USD initially dropped about 95 pips, from 0.5675 to 0.5580.
The follow-up message was more hawkish: Governor Breman said further increases are highly likely, potentially taking rates above the previous projected path. Today’s pause changes the timing of tightening. It does not settle where rates ultimately need to go.
September versus October
| Meeting comparison | Previous: 2 September | Latest: 28 October |
|---|---|---|
| Actions | Raised the OCR 25bp to 2.75% by consensus. | Held at 2.75%, in a 4–3 split, against expectations for 3.00%. |
| Forward guidance | Gradual removal of stimulus; further increases possible, with uncertain timing. | Further tightening likely but conditional. Breman discussed potentially restrictive rates and a higher eventual path. |
| Tone | Cautious normalisation towards neutral. | A dovish surprise in today’s decision, followed by hawkish guidance. |
| Wording | Rates “may need to increase further”. | “Tighter monetary policy is likely to be required.” The conditions attached still matter. |
| Risks | Persistent energy inflation versus an uneven recovery. | Inflation becoming entrenched versus weak domestic demand and a potentially abrupt global downturn. |
| Data focus | Core inflation, wages, expectations and recovery in household demand. | Pricing behaviour, fuel costs, the exchange rate, wages, employment and the effects of the two previous hikes. |
The comparison shows why the decision and the guidance need separate assessments. September’s message already allowed for pauses while moving towards neutral. October delivered that pause while retaining a clear tightening bias.
Why the majority waited
Annual inflation eased to 3.7%, below expectations, while wage growth remained subdued and medium-term inflation expectations stable. The four members favouring a hold wanted time to assess earlier hikes and weak household demand. The three favouring a hike put more weight on inflation becoming embedded and the risk of needing a stronger response later.
What the press conference added
Breman raised the possibility of moving into restrictive territory: rates high enough to actively slow demand. She also warned that lasting NZD weakness could add to imported inflation. Both comments keep future tightening firmly in the discussion.
The RBNZ expects inflation to reach 4.4% in the December quarter, largely because of fuel prices. That is a forecast, not an inflation result. October’s review did not publish a new full OCR projection track; comments about a higher path should not be mistaken for a newly issued forecast curve.
My NZD read
The near-term bias is bearish. The market missed the hike it expected, and NZD remains the overnight laggard despite recovering part of its initial fall. The hawkish guidance creates a meaningful recovery risk, so I would watch whether higher future rate expectations produce sustained currency strength.
A bounce by itself is not enough to restore the earlier bullish case.
What Invalidates This Thesis
Sustained NZD recovery backed by stronger relative rate expectations would undermine the bearish view. For NZD/USD, a softer Fed path could also reverse the pair even without a stronger New Zealand outlook. Another hike remains conditional on the data; a December move is not guaranteed.
