In a nutshell:
- The Reserve Bank (RBNZ) bucked expectations on 28 October, holding the Official Cash Rate (OCR) at 2.75%—amid considerable global and domestic economic uncertainty.
- Our economic recovery continues to land pretty unevenly. Certain sectors (exports, agri and tourism) are performing well, but consumer confidence remains weak overall.
- Meanwhile, inflation—while coming in a little lower than the RBNZ expected for the September quarter—is almost certain to bounce in the December quarter. Much of that pressure is being driven by high petrol prices and administered costs (like rates and electricity) rather than strong demand.
- With two OCR increases already under its belt, the RBNZ is keen to give the impact of those more time to flow through before pushing the OCR higher.
- Further OCR increases are expected but not guaranteed. Fresh economic data due out ahead of December’s OCR decision should help shed light on the future path for the OCR.
- Fixed mortgage rates are unlikely to change much, despite a small fall in wholesale rates after the surprise decision.
The Reserve Bank (RBNZ) hit pause on Official Cash Rate (OCR) hikes on 28 October, bucking market expectations and holding steady at 2.75%.
It was a close vote, split four to three in favour of no change.
Ahead of the decision, wholesale markets had been pricing in a 90%+ probability of a hike, and domestic economists were largely aligned in the view that an increase was almost guaranteed—although some with the caveat “we don’t think they should, but they will”.
Typically, when the markets are that certain, the RBNZ almost always follows their lead. Not this time though.
As part of its commentary around the decision, the RBNZ emphasised the highly uncertain global environment—and the need to strike a careful balance between managing stickier than hoped inflation, and growing concerns around the risk of a weak economic recovery.
It’s expecting further economic data over the next few weeks, ahead of December’s OCR decision, will help shed light on the best path forward.
For now, with two OCR increases already under its belt, the RBNZ is keen to take stock for a bit—giving the impact of those the chance to flow through further—before pushing rates any higher.
A natural question is whether the general election—voting for which is now underway—will have influenced the RBNZ’s decision in any way. I’d say the split vote is proof that that’s pretty unlikely.
What’s the wider economic context behind this week’s decision?
Our economic recovery is still landing unevenly.
While certain sectors—agriculture, exports and tourism—continue to perform well, domestic demand remains relatively weak overall, as higher unemployment and mildly falling house prices weigh on consumer confidence.
That weak demand is limiting businesses' ability to pass higher costs on to consumers, and helping to reduce the risk of inflation becoming more entrenched.
And inflation (while tracking in the right direction) is still proving stickier than hoped.
The latest numbers for the September 2026 quarter showed annual inflation sitting at 3.7%, down from 4.1% in June, but still above the RBNZ's 1–3% target range.
The issue is that much of this is being driven by forces largely outside consumers' control—particularly high petrol prices and administered costs like council rates and utilities.
Now, history tells us the inflationary impact of high oil prices (at least) should be temporary. The uncertainty is around how long that will take, and whether higher energy costs will start feeding into prices elsewhere in the economy.
The RBNZ has reinforced its focus on medium-term inflation, rather than the headline figures we're seeing today. Even if energy prices remain elevated, the initial surge will eventually drop out of annual inflation calculations, bringing the headline figure down considerably.
Away from the petrol pump, the picture around inflation actually isn't terrible.
Food price inflation is running at about 2–3%, rents are tracking pretty flat, and insurance cost inflation is now close to zero. Non-tradable inflation has fallen materially, although government-related charges remain a significant contributor.
Council rates and electricity remain significant sources of pressure, although a rates cap is on the way, with interim measures due from March 2027.
In other words, there are plenty of forces which should help keep a lid on inflation over time.
What does this week’s OCR verdict mean for mortgage rates and borrowers?
This week’s OCR result shouldn’t have too much of an impact on mortgage rates in market.
Floating rates are unlikely to move ahead of December’s OCR review.
Fixed rates may actually drop slightly in response to the relatively doveish tone of the RBNZ’s commentary this week.
That’s because wholesale markets had moved to price in 1.25% worth of OCR hikes before the end of 2027—and this week’s decision may force markets to reassess those expectations.
We’re seeing healthy competition between the banks right now, especially on one-year terms, with rates as low as 4.99%.
What’s the outlook on the OCR from here?
Further increases remain likely—but are by no means a certainty. Incoming economic data, particularly around inflation and energy prices, will be important in determining the RBNZ’s next move.
There's also considerable uncertainty around the global economic landscape, and what that could mean for us here in New Zealand.
There’s a risk that further geopolitical escalation could push energy prices higher, adding to inflationary pressures. On the flip side, a sharp global economic downturn could weaken demand and inflation enough to change the RBNZ's thinking entirely—even potentially bringing rate cuts back into consideration.
The overarching message from the RBNZ is that it's not necessarily finished increasing rates. But with a question mark over the future of inflation and the economy, it wants to give things a little more time before deciding what comes next.
About the author: David Cunningham, Chief Squirrel
With more than three decades of senior experience across New Zealand’s financial services sector, David knows the world of banking and finance inside out. He's not afraid to call it like he sees it (all part of our fight for a fairer financial system) which is why he's a regular media commentator on matters relating to the economy, housing market, mortgages, saving and investing, and interest rates.