New Zealand central bank unexpectedly holds rates, signals likely hikes
This comes 10 days before a general election where the outlook for the economy and inflation remains a key issue
New Zealand's central bank surprised markets by leaving its benchmark interest rate unchanged at 2.75 percent on October 28, but signaled tighter monetary policy could be needed depending on the economic outlook. The Reserve Bank of New Zealand (RBNZ) stated that the committee agreed on the overall inflation outlook, but disagreed on the timing of any response.
In a Reuters poll, 22 of 27 economists expected a 25 basis point rate hike, but the bank held the rate to avoid destabilizing the economy. The New Zealand dollar fell sharply to US$0.5590 after the decision, with two-year swap rates dropping from 4.1109 percent to 3.9497 percent. Westpac noted this was the first time since the Covid pandemic that the central bank held rates while markets anticipated a significant hike.
The bank has previously raised rates twice due to inflation concerns, which remain outside its 1-3 percent target range. The decision to hold rates came as a close general election approached, with the economy and inflation a key voter issue. Committee members who voted to maintain the rate wanted more time to evaluate the impact of recent increases and economic developments.
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