New Zealand central bank surprises markets with rate hold

The Reserve Bank of New Zealand held its official cash rate at 2.75% on Wednesday, surprising markets after 22 of 27 economists in a Reuters poll had forecast a quarter-point increase. The Monetary Policy Committee split 4–3, with the minority favouring an immediate rise.

The committee said tighter policy is likely to be required but remains conditional on the outlook. Fuel costs have increased as global energy markets remain disrupted, the New Zealand dollar has weakened by about 3% since early September, and the bank expects annual inflation to reach 4.4% in the December quarter. At the same time, two previous rate increases are still working through mortgages, demand and employment.

The decision does not mean the bank considers inflation defeated or that the next move is certain. It reflects disagreement about timing and the relative risk of acting too soon or too late. The New Zealand dollar fell as much as 1.7% against the US dollar after the announcement, Reuters reported. Markets will now test the bank’s conditional guidance against incoming inflation, labour-market and energy data rather than treating Wednesday’s hold as a lasting pause.