First Impressions: RBNZ Monetary Policy Review October 2026
The RBNZ left the OCR unchanged at 2.75% (in contrast to market expectation for a hike, including ourselves).
The MPC has stuck to its strategy of pausing to assess the impact of tightening already done. There is a clear split among the MPC members on where the risks lie although it seems clear enough that higher interest rates are in the future the data evolves as the Committee expects. Key factors to focus on are data on inflation expectations, the global economy (and potential downside risks there) and the path of fuel prices. We expect a 25 bp increase in the OCR in December to 3% and are reverting to the OCR profile we had up until mid last week. We don't think the December hike is a done deal as the data will inform the next move. We will revert with more detail after the press conference.
Key takeouts from the minutes below.
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Key takeouts
| Category | 2 September 2026 meeting | 28 October 2026 meeting |
| The next policy decision | Future policy decisions will depend on the Committee’s judgement of the balance of risks to medium-term inflation. | Members discussed that information arriving over the next six weeks could meaningfully change the appropriate policy stance in either direction. |
| Conditional on the central economic outlook, members judged that the OCR may need to increase further. | All members agreed that tighter monetary policy is likely to be required, but remains conditional on the economic outlook. | |
| However, the future OCR path is not pre-determined. | ||
| The medium term direction for the OCR | The Committee judges that gradually removing monetary stimulus is appropriate to return inflation to the 2 percent target mid-point while supporting growth and employment. | Further OCR increases likely, but are conditional on the outlook |
| All members agreed that gradually removing monetary stimulus is consistent with achieving the medium-term inflation target, conditional on the outlook. | If domestic pricing pressures fail to moderate sufficiently or broaden beyond what costs and normal pass-through can explain, this could warrant further tightening. | |
| Conditional on the central economic outlook, members judged that the OCR may need to increase further. | On the other hand, subdued pricing pressures could require holding at future meetings. | |
| And if the global economy turns sharply down, materially weakening demand and the inflation outlook, this could alter the desired stance, including leading to monetary easing. | ||
| The neutral OCR | The Committee acknowledged that the neutral interest rate has a wide range of plausible estimates. | |
| Members noted that the increase in global long-term yields may partly signal a higher global neutral interest rate, due to higher inflation expectations, war destruction and demand for capital to support AI investment. | ||
| Higher global interest rates could bring forward a potential global downturn, and the neutral interest rate could decline rapidly in the event of an abrupt global adjustment. | ||
| The strength of economic activity | After lacklustre growth in the June quarter, New Zealand's economic recovery has most likely resumed but remains uneven. | The New Zealand economy continues to recover, although conditions remain uneven. |
| The recovery is expected to strengthen and broaden. | The Committee noted that GDP growth was more than expected through the first half of 2026. | |
| The Committee assessed that growth was lacklustre in the second quarter of 2026. | Business survey measures point to continued expansion in economic activity. | |
| The economic recovery is expected to have resumed in the third quarter, while remaining uneven across sectors and regions. | Household consumption has been weak and the aggregate saving rate is estimated to be 3.7 percent, above the 10-year average of 1 percent. | |
| The global economic outlook | The global economy is facing significant risks that could affect commodity prices and demand for exports. | Global growth has been resilient but is increasingly fragile given geopolitical tensions, high energy prices, financial stresses, and surging AI-related investment. |
| Despite recent geopolitical events, economic growth in New Zealand’s trading partners has remained resilient and the outlook has improved. | The Committee assessed that there are significant risks to the global economic outlook. | |
| Although risks to the global economy remain heightened, the Committee expects global economic conditions to remain favourable for New Zealand’s export facing businesses over the medium term. | The Committee noted that a global downturn could occur abruptly. | |
| The labour market | Conditions in the labour market should improve as the recovery gathers pace. | Employment growth remains subdued and higher prices will further reduce real incomes and purchasing power. |
| Employment growth has not been sufficient to fully absorb new entrants into the labour market and unemployment is elevated, particularly in Auckland and Wellington and for youth and the long-term unemployed. | Employment intentions remain weak, pointing to continued slow recovery in the labour market. | |
| The labour market is expected to slowly improve, with employment growing and unemployment falling as the economy recovers. | To date, wage growth has been subdued, and medium-term inflation expectations have remained stable. | |
| On balance, the Committee assesses that spare capacity remains in the economy, particularly in the labour market. | ||
| The short term inflation outlook | Inflation increased to 4.1 percent in the June quarter because of higher fuel prices arising from the conflict in the Middle East. | Annual inflation is expected to increase to 4.4 percent in the December quarter, largely reflecting current futures prices for fuel. |
| The Committee expects inflation to remain elevated this year before returning to the target band by mid-2027 and reaching the 2 percent mid-point later next year. | Near-term inflation forecasts are uncertain given volatility in prices for oil and refined fuels. | |
| Direct effects of higher fuel prices will drop out of the annual inflation calculation in late 2027 if prices for refined petroleum products stabilise or fall. | ||
| The medium term inflation outlook | Core inflation, expected wage growth, and inflation expectations remain consistent with inflation returning to the 1 to 3 percent target band by mid-2027 and the 2 percent target midpoint later next year. | The Committee is focused on returning inflation to the 2 percent target mid-point over the medium term, discounting temporary disturbances to inflation and avoiding unnecessary economic instability. |
| Longer-term inflation expectations remain near 2 percent, while most measures of one and two-year-ahead inflation expectations have fallen since May. | Impacts on shortterm pricing behaviour appear to have been contained and medium-term inflation expectations remain well anchored. | |
| Currently, indicators of medium-term inflation are consistent with inflation returning to target. | But the longer inflation remains high, the greater the risk of higher costs feeding into inflation expectations and price- and wage-setting behaviour, making inflation more persistent. | |
| The balance of risks for economic growth and inflation | New Zealand’s economic recovery could be stronger or weaker than expected and price pressures could generate more persistent inflation. | New Zealand’s recovery could be stronger than expected but could also lose momentum if the global environment deteriorates or export strength does not flow through to jobs, incomes and household spending. |
| Consumption growth could be subdued if employment and house price growth remain weak, or if precautionary behaviour persists. | There is a risk that inflation becomes entrenched before conventional expectations measures respond, despite the previous two OCR increases. | |
| Alternatively, consumption growth could be stronger and absorb spare capacity faster than currently anticipated. | In addition, the world economy could tip abruptly into a downturn causing weaker inflation over the medium term. | |
| All members agreed that downside risks to activity were significant and that the recovery could remain uneven. | It is also possible that geopolitical escalation could drive fuel prices higher while weakening global economic activity at the same time. | |
| Key arguments advanced by more hawkish MPC members | Hayley Gourley, Karen Silk, Prasanna Gai and Anna Breman saw upside risks to inflation relative to the central projection. | Hayley Gourley, Paul Conway and Karen Silk favoured increasing the OCR by 25 basis points at this meeting. |
| These members observed that more persistence in energy and petrochemical prices could raise near-term inflation risks, impact price-setting behaviour, and lead to more sticky inflation over the medium term. | These members emphasised that core inflation has been above levels consistent with headline inflation at the target mid-point for some time. | |
| Price-setting can be a front-loaded process, meaning businesses could raise domestic prices more than import costs warrant. | This increases the risk of inflation becoming entrenched in price-setting behaviour as the conflict and its consequences endure, including through higher freight and shipping costs. | |
| These factors increase the risk that monetary policy needs to lean against broader inflation pressures. | Acting now would guard against sustained inflation pressures and potentially reduce the risk of needing to do more with interest rates later. | |
| Key arguments advanced by more dovish MPC members in each meeting | Paul Conway and Carl Hansen saw risks to inflation as balanced. | Anna Breman, Carl Hansen, Rebecca Williams and Prasanna Gai favoured holding the OCR at this meeting as two recent OCR increases allow the Committee to take further time to assess their effects and economic developments. |
| These members shared concerns that high inflation could become embedded through price-setting behaviour. | Actual inflation was lower than expected, reflecting smaller indirect effects of higher fuels prices, and medium-term inflation expectations and wage growth remain consistent with returning inflation to the target mid-point. | |
| But weighed against this, they saw activity risks as skewed to the downside and noted that these could weigh on inflation. | These members emphasised the risk of a weak recovery, particularly in household consumption and investment. | |
| They highlighted the potential effects of weak house prices and precautionary behaviour, weakening growth in household spending. | They favoured pausing at this meeting to observe and assess demand and financial conditions. |
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