RBNZ holds rates in surprise 4-3 vote as NZD slides to multi-year lows across major crosses

HouGarden New Zealand, 29 October — The decision, described in a BNZ Markets strategy note by senior strategist Jason Wong, drove New Zealand interest rates lower and triggered a broad sell-off in the New Zealand dollar. The currency hit a series of multi-year lows against major trading partners before partially recovering.

According to BNZ Markets, the OCR was left unchanged in a 4-3 vote. The minutes showed that two of the members who voted to hold — identified in the BNZ report as Gai and Breman — placed material weight on the risk that the global environment could shift abruptly. Governor Breman, who voted to hold, told a subsequent press conference that the Bank was likely to raise the OCR at coming meetings, and that the projected rate track would probably be higher than the one published in September. All seven members agreed that tighter monetary policy was likely to be required at some point.

BNZ Markets described the decision as 'puzzling,' noting that it appeared to reflect global risks more than the domestic data. Core inflation had already reached the top of the target range, GDP growth had surprised to the upside in the first half of the year, and price increases had become more broad-based.

The immediate market reaction was sharp. The NZD/USD rate fell from around 0.5675 before the announcement to a low of 0.5585, according to BNZ Markets, before recovering modestly overnight to around 0.5620. The report identified 0.5580 as a key short-term technical support level, with the multi-year support level of 0.55 below that.

Against the Australian dollar, NZD/AUD dropped to a fresh 13-year low of 0.7935, according to BNZ Markets, before finding support just below 0.80. NZD/GBP fell to an 11-year low just below 0.42, and NZD/CNY touched a 17-year low of 3.7250. NZD/CAD fell below 0.79, while NZD/JPY held support just above 88 and NZD/EUR just above 0.5020. For New Zealand residents who remit money to China or hold assets denominated in Chinese yuan, the NZD/CNY move means the New Zealand dollar now buys significantly fewer yuan than at any point in nearly two decades.

On interest rates, the BNZ report said the 2-year swap rate closed 11 basis points lower at 4.01 percent, off an intraday low of 3.97 percent. The 5-year swap rate fell 5 basis points to 4.32 percent and the 10-year rate fell 1 basis point to 4.64 percent. The 10-year New Zealand Government Bond yield fell 4 basis points to 4.93 percent. BNZ Markets noted that the market's reaction was partly restrained by the view that if the RBNZ was unwilling to address inflation now, it could raise the prospect of further hikes further down the track. For borrowers on floating home loans, the RBNZ's decision to hold means no immediate upward pressure on variable mortgage rates from this meeting alone, though the Bank's own guidance points to increases ahead.

Separately, New Zealand Debt Management announced a reduction in its weekly bond tender from NZ$450 million to NZ$350 million, following a pre-election fiscal update that trimmed the borrowing requirement for the 2027 financial year. BNZ Markets said this drove a modest outperformance of New Zealand Government Bonds relative to swap.

The RBNZ's decision stands in contrast to moves by other central banks covered in the BNZ Markets note. The Bank of Canada raised its policy rate by 25 basis points — its first tightening in more than three years — although BNZ Markets cautioned that the specific rate level cited in its report should be read as sourced from that document rather than verified independently. The Bank of Canada's Governor Macklem, as cited by BNZ Markets, noted that energy prices were higher and expected to remain so, that cost pressures were building, and that further increases could be needed, though the Bank would 'proceed carefully.'

In Australia, Reserve Bank Governor Bullock delivered what BNZ Markets characterised as hawkish testimony to a parliamentary committee, saying inflation was likely running higher than projected and that the Bank could not allow high inflation to persist. Australian trimmed-mean core inflation rose 1.0 percent quarter-on-quarter and 3.7 percent year-on-year, broadly in line with expectations according to BNZ Markets. Market pricing for an RBA rate hike at the following week's meeting rose to around an 85 percent probability, the report said.

The United States Federal Reserve also held policy unchanged at its meeting, according to BNZ Markets, voting 10-2. The BNZ report noted the decision and described the short accompanying statement as characterising economic activity as expanding at a strong pace and inflation as remaining elevated. BNZ Markets was publishing ahead of the subsequent press conference at the time of writing. The specific Fed Funds target range and the names of dissenting officials cited in the BNZ report are drawn from that document and have not been independently verified by HouGarden.

In the United Kingdom, the government's Budget drew a muted response from gilt and sterling markets, which BNZ Markets said was consistent with its billing as a steady, do-no-harm fiscal event. The report, citing the Financial Times, described immediate new spending plans for the 2026-27 fiscal year as amounting to less than 0.25 percent of GDP, with tax rises by 2029-30 worth £5.5 billion — described as insignificant compared with the £66 billion announced in the two preceding Budgets. The Chancellor is identified in the BNZ report as Healey.

Oil prices rose, with Brent crude trading around US$115 per barrel according to BNZ Markets, after initially spiking above US$116.50 on a Wall Street Journal report that the United States had told Gulf Arab nations to prepare for a possible military campaign. European natural gas prices surged more than 4 percent, breaking above €100 per megawatt-hour for the first time since Russia's 2022 invasion of Ukraine, on fears of supply disruption ahead of the winter season, the BNZ report said.

Looking ahead, BNZ Markets flagged the ANZ business outlook survey, the first estimate of US third-quarter GDP — with Bloomberg consensus at annualised growth of 3.2 percent, though the report noted that figure could be stale and risks were skewed to the downside — and the US core PCE deflator for September, where a 0.3 percent monthly rise would lift the annual rate to 3.1 percent. The European Central Bank was also due to meet and was expected to hold policy steady, the report noted.