A 4-3 Hold in Wellington Splits the Antipodes on Rates

The split decision

The Reserve Bank of New Zealand left the Official Cash Rate unchanged at 2.75 percent in its October 2026 review, opting to pause and assess the effect of previous rate increases. The committee voted 4-3 against a 25 basis point hike, with Governor Breman voting in the camp favouring a hold. Westpac described the decision as unexpected, and ANZ Research reported that markets and economists had expected a 25 basis point increase. m:…4584 m:…8017

The hold did not signal that the tightening debate is over. ANZ Research reported that the committee agreed tighter monetary policy is likely to be required, and Westpac reported that the Reserve Bank of New Zealand maintains that further rate increases are necessary, with the timing subject to incoming data. The committee also noted that a global downturn could occur abruptly, and ANZ Research said members prioritised caution in light of global economic fragility. m:…8017

Markets repriced quickly after the announcement. ANZ Research reported that the two-year swap rate fell around 13 basis points to 3.98 percent, the New Zealand dollar fell around 75 basis points to 0.5605, and market expectations for a December hike settled at around 80 percent. The reaction left the hold looking like a delay rather than an end to tightening, with the next decision still framed as data-dependent. m:…8017

The domestic backdrop helps explain the caution. ANZ Research reported annual consumer price inflation of 3.7 percent in the September quarter, with core measures near the top of the 1 to 3 percent target band, and annual inflation expected to increase to 4.4 percent in the December quarter. Wage growth has been subdued and medium-term inflation expectations have remained stable, according to ANZ Research, while house prices continue to decline and weigh on household sentiment and spending. m:…8017

Demand is uneven inside New Zealand. ANZ Research reported that domestic demand remains subdued outside exporting centres, while export-exposed sectors are benefiting from high commodity prices and strong demand. That split gives the committee two different economies to weigh: exporters supported by commodity prices, and households facing falling house prices and soft spending. m:…8017

Australian inflation points the other way

Across the Tasman, the latest price data pointed toward tightening rather than patience. Westpac reported that the Australian monthly consumer price index rose 0.8 percent in September 2026, above market expectations, pushing the annual rate to 4.3 percent. The trimmed mean measure rose 0.3 percent in the month, and its six-month annualised pace stood at 4.0 percent, indicating that underlying pressures remain persistent even as some components cool. m:…3284

The details were mixed. Westpac reported automotive fuel prices rose 9.4 percent in September and holiday travel and accommodation prices rose 7.6 percent, while housing inflation is moderating faster than Westpac anticipated and new dwelling inflation was flat, the softest reading since May 2025. The share of the consumer price basket running above 3 percent annual inflation fell from 40 percent to 35 percent, a sign that price pressure is narrowing even as the headline rate rose. m:…3284

Westpac maintains its forecast that the Reserve Bank of Australia will raise interest rates at its November meeting, prioritising underlying inflationary pressures. Westpac card tracker data for late October showed quarterly momentum in spending of approximately 2 percent, but discretionary goods spending declined over the previous six weeks. The combination of firm headline inflation and softer discretionary spending frames the November decision as a judgement about persistence rather than strength. m:…3284 m:…2280

What the next data must show

New Zealand labour market data is the next test of the hold. Westpac expects the unemployment rate to ease to 5.5 percent in the September quarter as job growth gains momentum and becomes sufficient to outstrip population growth, with the participation rate the deciding factor for the unemployment rate. Wage growth is likely to remain muted, Westpac said, because existing slack in the labour market is likely to keep it subdued, and Westpac described its forecasts as more positive than the assumptions in the Reserve Bank of New Zealand September policy statement. m:…6541

The two banks differ on the path from here, which is itself useful information. Westpac expects a 25 basis point hike from the Reserve Bank of New Zealand in December 2026, with a December decision depending on data on fuel prices, inflation expectations and second-round pricing pressures, and an eventual peak cash rate of 4 percent in September 2027. ANZ Research expects three further 25 basis point hikes in December, February and March, taking the cash rate to 3.50 percent. Both paths treat the October hold as a pause inside a tightening phase, not a change of direction. m:…4584 m:…8017

For professionals watching the region, the useful distinction is between the vote and the outlook. The vote was close, the market reaction was swift, and the published forecasts still point upward on both sides of the Tasman. The October hold bought the Reserve Bank of New Zealand time to read labour and inflation data; it did not remove the tightening question, and the Australian data released in the same week kept that question live. m:…8017 m:…3284