The Reserve Bank of New Zealand (RBNZ) unexpectedly left the official cash rate (OCR) at 2,75%. The decision was made in a split vote of 4 against 3.
Governor Anna Breman joined three external committee members in voting to keep the rate unchanged. Three senior RBNZ officials voted for an increase.
Markets and most economists had expected a rise of 25 basis points. The decision came as a surprise and weakened the New Zealand dollar by almost a cent against the US dollar — to just below 56 cents.
The bank's statement notes that annual inflation is projected to rise to 4,4% in the December quarter, mainly due to fuel prices. At the same time, committee members differed in their assessment of the balance of risks and the timing of a possible monetary policy response.
The committee acknowledged signs of economic recovery but stressed the uncertainty of the outlook. The global environment appears increasingly fragile, while domestic demand remains subdued.
The bank left the door open to tightening policy in the future. The next decision is expected in December, and many analysts now consider a hike in December the most likely outcome.
National Party spokesperson Nicola Willis linked the low rate level to the fiscal discipline of the outgoing government. Economists noted that the tone of the statement was softer than expected, with an emphasis on risks to the recovery.
How will the pause affect the further trajectory of inflation and recovery?
