The Reserve Bank of New Zealand (RBNZ) held its official cash rate at 2.75% on Wednesday (New Zealand time), surprising money markets that had priced in about a 90% chance of a quarter-point rise, Dow Jones Newswires and AAP reported. All five of New Zealand's major banks had expected a hike to 3.00%.

Source: Dow Jones Newswires via Morningstar

The monetary policy committee split 4–3. Governor Anna Breman, Carl Hansen, Prasanna Gai and Rebecca Williams voted to hold, while Paul Conway, Hayley Gourley and Karen Silk voted for a rise to 3.00%, the bank's record of the meeting showed. The majority said the two hikes already delivered this year give the committee time to assess their effects, pointing to third-quarter headline inflation of 3.7% — down from 4.1% and below expectations — smaller-than-expected pass-through from fuel costs, subdued wages and a fragile domestic recovery.

2.75%Official cash rate, held — markets had priced a hike to 3.00%
4–3Committee vote in favour of holding
~90%Market odds of a hike before the decision
3.7%Q3 headline inflation, down from 4.1%
4.4%Inflation the RBNZ expects in the December quarter, on fuel prices

The hold does not mean the tightening cycle is over. All seven committee members agreed that tighter monetary policy is likely to be required, the bank said — the disagreement was over timing, not direction. The RBNZ expects headline inflation to rise to 4.4% in the December quarter, largely on elevated fuel prices, and noted the New Zealand dollar has fallen about 3% since September, adding to imported-inflation risk. Core inflation sits near the top of the bank's 1% to 3% target band, with 56% of the consumer price basket by weight rising more than 3% a year.

The decision lands days before New Zealand's November 7 election. AAP noted it is good news for Prime Minister Chris Luxon's coalition, which has campaigned on keeping interest rates low, while the bank itself warned that New Zealand's recovery could lose momentum if the global environment deteriorates. Unemployment remains around its highest level in 11 years, Dow Jones reported.

Source: AAP

Across the Tasman Sea, the contrast was sharp on the same day: Australia's central bank chief Michele Bullock told a Senate committee that inflation is likely to run higher than forecast, and September quarter data showed the Reserve Bank of Australia's preferred trimmed-mean inflation measure at 3.7% year on year, with monthly headline inflation at 4.3% in September, InvestingLive reported. New Zealand, in other words, chose to wait while its neighbour leaned hawkish.

Source: InvestingLive

What happens next

The RBNZ's guidance keeps a December move firmly in play: if fuel-driven inflation feeds through more strongly than the majority expects, the three dissenters' case for hiking now will be hard to resist at the next meeting.