RBNZ Monetary Policy Decision: Expectations in Focus

• An OCR increase to 3% is expected from the RBNZ, with the rise fully priced into markets.
• At 3.7%, New Zealand’s still-elevated inflation strengthens the case for further tightening.
• Resistance for NZD/USD lies at 0.5748–0.5769, while 0.5600 remains a key support level.

A 25 basis point increase in the Overnight Cash Rate (OCR), from 2.75% to 3%, is expected when the Reserve Bank of New Zealand (RBNZ), headed by Governor Anna Breman, announces its decision on Wednesday, 28 October at 01:00 GMT. Money markets assign a 100% probability to the rise.

RBNZ guidance takes centre stage as markets price a 100% chance of a rate rise

The increase would mark the RBNZ’s third rate rise, with the probability of a further increase in December standing at nearly 50%.

At its September meeting, the Committee unanimously agreed to raise the OCR and withdraw monetary stimulus, seeking to bring inflation towards the 2% target while supporting economic growth and the labour market. The move was intended to limit the risk of more aggressive rate adjustments, with the Committee keeping an open mind about subsequent changes to the OCR.

A further increase would notably take the OCR nearer to the RBNZ’s neutral range. Speaking at the press conference after the decision, Governor Breman said the committee was moving rates towards neutral while retaining an accommodative stance.

Breman also indicated that another OCR increase was likely and that the impact of the rate rises already delivered would be assessed.

Taken together, these remarks point to a central bank inclined towards additional increases, although their timing remains unclear. 

The latest figures leave room for more rate rises. New Zealand’s Q2 GDP growth came in at 2.6% YoY, ahead of the 2.3% forecast. Q3 CPI inflation, meanwhile, eased to 3.7% YoY, below expectations of 3.8% but still above the RBNZ’s 2% inflation target.

NZD/USD awaits the policy signals

Near the lower end of its 0.5675-0.5708 daily trading range, NZD/USD is holding comfortably as traders await a potential two-stage reaction, with the Federal Reserve’s decision also in focus.

A hawkish stance from the RBNZ could lift the pair towards the confluence of its 50-day and 100-day Simple Moving Averages (SMAs), at 0.5748 and 0.5769 respectively. A break above that area would make a potential advance towards 0.5800 likely.

Conversely, a dovish message from the RBNZ could open the way for tests of 0.5650 and the psychologically significant 0.5600 level. Traders are defending the latter after the pair has traded on either side of it for at least 14 days. Further losses would bring the year-to-date (YTD) low of 0.5564 into focus.