New Zealand’s central bank unexpectedly held its benchmark interest rate steady on Wednesday, October 28, defying widespread expectations of another hike and sending the New Zealand dollar sharply lower, just 10 days before the country’s general election.
The Reserve Bank of New Zealand (RBNZ) voted 4 to 3 to keep the official cash rate (OCR) at 2.75%, Governor Anna Breman voting with the majority, while three committee members wanted to raise rates. In a Reuters poll, 22 of 27 economists had forecast a 25-basis-point increase.
A surprise the market had not priced
Markets had priced in a high probability of a hike — Westpac noted it was the first time outside the COVID pandemic that the central bank held rates while markets had priced in a more than 70% chance of an increase. BusinessDesk put the priced-in chance of a hike at 90%.
The New Zealand dollar dropped sharply after the decision, falling to US$0.5590 from US$0.5676, and sinking as much as 1.7% to US$0.5585 in the Reuters foreign-exchange report. Two-year swap rates fell from a high of 4.1109% to a low of 3.9497%.
Why the bank held — and why hikes are still likely
The bank’s accompanying Monetary Policy Review statement said all committee members agreed on the overall outlook for inflation, but differed on how much weight to place on various risks and on the timing of the monetary policy response.
“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,” the RBNZ said in the statement.
Despite the hold, the committee agreed that tighter monetary policy is likely to be required, depending on the economic outlook. AAP reported that retail banks and the RBNZ still have rises pencilled in for December or early 2027.
Governor Breman acknowledged the difficulty of the call. “This is a tough decision,” she said, adding “we have a lot of volatility,” according to AAP’s reporting.
Inflation still above target
The bank has raised the cash rate at its previous two meetings because inflation was sitting outside its 1% to 3% target range. AAP reported headline inflation running at 3.7% and forecast to top 4% by year’s end, with the RBNZ statement attributing the overshoot largely to high global fuel costs and their effects on other prices.
Even after the two recent hikes, the rate remains well below its peak of 5.5% in August 2024, following a rapid easing cycle as the economy struggled and inflation eased.
An election 10 days away
The decision comes just 10 days before a close-fought general election in which the economy and inflation remain key issues for voters. One Auckland market commentator told Reuters the timing mattered: “The election is only 10 days away. It’s common courtesy not to get involved in politics,” said Mike Houlahan of Electus Financial.
What happens next turns on whether inflation cools or keeps running hot: a December move remains on the table if the data argue for it, while a softer inflation print could vindicate the hold. The bank said it will adjust the OCR as needed so that inflation gets back to its 2% midpoint target.
For earlier central-bank coverage, see Emadan’s report on Bank of Canada and Bank of England rate decisions.
Sources
- Reuters via Nikkei Asia — “New Zealand central bank stands pat, signals future hikes” (October 28, 2026): https://asia.nikkei.com/business/markets/currencies/new-zealand-central-bank-stands-pat-signals-future-hikes
- Reuters via Business Times — “New Zealand central bank unexpectedly holds rates, signals likely hikes” (October 28, 2026): https://www.businesstimes.com.sg/companies-markets/banking-finance/new-zealand-central-bank-unexpectedly-holds-rates-signals-likely-hikes
- AAP — “New Zealand interest rates held in surprise dovish call” (October 28, 2026): https://aapnews.aap.com.au/news/new-zealand-interest-rates-held-in-surprise-call
- Reuters via 93.5 The Lloyd — “Dollar steady ahead of Fed decision, kiwi slumps after RBNZ holds” (October 28, 2026): https://935thelloyd.com/2026/10/27/dollar-holds-gains-ahead-of-fed-policy-signal-rbnz-decision/
Frequently asked questions
What did the Reserve Bank of New Zealand decide?
It held the official cash rate at 2.75% on October 28, 2026, by a 4–3 committee vote.
Why was it a surprise?
22 of 27 economists polled by Reuters expected a 25-basis-point hike, and markets had priced in a more than 70% chance of an increase.
What happened to the New Zealand dollar?
It fell sharply, to US$0.5590 from US$0.5676, and as much as 1.7% lower to US$0.5585 in the Reuters foreign-exchange report.
Does the hold mean hikes are over?
No. The committee said tighter policy is likely to be required depending on the outlook, and rises are still expected in December or early 2027.
