New Zealand Central Bank Surprises Markets With Rate Hold at 2.75 Percent as Kiwi Dollar Falls

The Reserve Bank of New Zealand held its official cash rate at 2.75 percent on Wednesday, October 28, 2026, after its monetary policy committee voted 4 to 3 to leave rates unchanged. The decision surprised markets, which had priced in a near certain increase, and it came just days before the country votes in an election on November 7.

A Reuters poll of economists had pointed the same way as market pricing. In that poll, 22 of 27 economists expected the central bank to raise rates, and the probability of a hike had been put at 95 percent before the decision. Instead, the committee split, and Governor Anna Breman was effectively the casting vote in favour of holding.

The dollar falls after the call

The New Zealand dollar sank as much as 1.7 percent after the decision, touching an intraday low of 0.5585 US dollars. Dow Jones Newswires reported that it fell by close to one US cent before consolidating just above 56.00 US cents. AAP reported that the currency was already at 18 year lows against the US dollar and fell a further one percent on the call.

Mike Houlahan, a director at Electus Financial Ltd in Auckland, summed up the market reaction for Reuters. 'The market just got that wrong,' he said. The currency later trimmed some of its losses after Breman said the committee expected to see further official cash rate increases in coming meetings.

Why the committee waited

AAP reported that Breman preferred to watch and see the impact of two previous hikes, in July and September, before moving again. 'This is a tough decision,' Breman said, in comments reported by AAP, which also quoted her saying that the bank faces a lot of volatility.

Breman said global risks, including the unresolved war in the Middle East, and fresh inflation data would be critical to decisions in the coming weeks. She said the election in November was not a factor in the decision to hold rates steady.

Headline inflation is running at 3.7 percent and is forecast to top four percent by the end of the year. AAP reported that the central bank views the inflation as largely due to imported causes, with high global fuel costs at the top of the list. Unemployment stands at 5.6 percent, an 11 year high. Economic growth reached a two year high of 1.7 percent in the year to June, while household consumption is running well below private investment.

Further hikes still expected

'We do think that we will see further OCR increase because of what we are seeing in inflation,' Breman told reporters, in comments reported by Dow Jones Newswires. She added, in remarks reported by Reuters: 'They may even be higher than we said at the September meeting.'

Dow Jones reported that the bank would likely consider another hike in December, when it releases fresh economic forecasts. ANZ forecasts three more hikes, in December, February and March, taking the cash rate to 3.5 percent. ANZ chief economist Sharon Zollner said that level would be needed to head off the risk of persistent inflation. 'In the end, it was a close-run thing,' Zollner said.