The Reserve Bank of New Zealand left the official cash rate unchanged at 2.75% at its October 2026 meeting, defying market expectations of a 25bp increase. The decision was closely contested, with a 4–3 split, as policymakers focused on returning inflation to the 2% midpoint of the target band while avoiding unnecessary volatility in output, employment, interest rates, and the exchange rate.
The committee agreed that further policy tightening would likely be required, contingent on the evolving economic outlook, and emphasised the risks associated with inflation expectations. Wage growth remained subdued, and medium-term inflation expectations were stable, while administered price inflation came in lower than anticipated in the September quarter.
The board also highlighted significant uncertainty around near-term inflation, citing volatile oil and fuel prices. It noted that higher global bond yields may reflect rising inflation expectations, destruction associated with ongoing conflicts, and increased investment demand linked to artificial intelligence. However, members cautioned that these higher yields could also hasten a global downturn and lead to a rapid decline in the neutral interest rate.
