October 2026 Monetary Policy Review media conference

October Monetary Policy Review — Summary

Decision and policy outlook

• The Reserve Bank of New Zealand’s Monetary Policy Committee kept the Official Cash Rate (OCR) at 2.75%.
• The committee remains focused on returning inflation to its 2% midpoint target over the medium term, while avoiding excessive volatility in output.
• Members agreed on the inflation forecasts but differed over the risks and timing of policy responses. The Governor said further OCR increases are likely, depending on the economic outlook. Tightening could reach restrictive levels if domestic inflation pressures persist.
• Markets had priced in a hike: the Governor said about 95% of market participants expected a rise to 3%. He said the Bank considers market pricing and financial conditions but bases decisions on its own inflation and economic forecasts.
• The September OCR track implied further increases, and the committee discussed whether rates might need to rise more than projected then. The Governor said the Bank would publish updated forecasts and an OCR path at its December meeting. Market pricing cited in the Q&A suggested a peak around 3.75% or higher, above the Bank’s September trajectory.
• The Governor said two recent rate hikes would still be working through the economy, giving the committee time to assess incoming data.

Inflation and economic conditions

• Annual CPI inflation eased to 3.7% in the September quarter, from 4.1% in June, and was below the Bank’s expectations.
• Inflation is forecast to rise to 4.4% in the December quarter, mainly reflecting current fuel-futures prices. The Governor emphasized that near-term forecasts are uncertain because oil and fuel prices are volatile.
• Core inflation remains elevated, with measures near the upper end of the 1–3% target range as price increases have become more widespread.
• The indirect effect of higher fuel prices on other goods and services was weaker than expected. Inflation expectations were described as relatively stable, wage growth as subdued, and firms’ ability to pass higher costs on to households as limited. The Bank said it had not seen a price-wage spiral.
• The New Zealand dollar had depreciated about 3% since the September Monetary Policy Report and fell roughly 1% after the decision. A persistently weak currency could add to imported inflation and later price- and wage-setting pressures; prolonged weak demand could limit those effects. A lower dollar also supports exporters and tourism.
• GDP growth was slightly stronger than expected in the first half of the year, and business surveys pointed to further growth in the second half. Exports—supported by high commodity prices and steady trading-partner demand—were an important source of recovery and business investment.
• The recovery remained uneven: household consumption was unchanged in the June quarter, employment growth was weak, house prices remained low, and household savings were above their 10-year average. The Bank expected consumption to recover gradually and increasingly depend on income rather than housing-wealth effects.
• Foreign visitor numbers had returned to pre-COVID levels, supporting tourism and employment.
• The Governor noted that export-sector strength had not yet translated into broad-based household demand. He also highlighted uncertainty about employment, consumption, and regional differences in housing conditions.

Markets, risks, and financial conditions

• Global gasoline spot and futures prices—illustrated using the Singapore gasoline spot price—had been volatile and recently risen again amid energy-market disruptions. Markets expected fuel prices to decline over the following year, but more slowly and to a higher level than forecast earlier in the year.
• A reporter cited a 14-basis-point decline in the two-year swap rate after the decision. The Bank said wholesale-rate changes had not been fully passed through to mortgage and term-deposit rates.
• Savings remained high and credit demand relatively weak. Banks were described as well funded, with deposit growth helping restrain funding costs and pass-through to retail rates.
• The Governor described the global outlook as resilient but fragile. Risks included geopolitical tensions, high energy prices, public debt, tighter financial conditions, rising government and private-market bond yields, and vulnerabilities in debt markets.
• The global AI investment boom was seen as an opportunity but also a potential source of market-correction risk. The Governor said a correction was a risk being monitored, not the Bank’s central scenario.
• Other monitored risks included stronger-than-expected domestic momentum, export gains failing to spread through the economy, and persistent inflationary pressure.

Framework and next steps

The Bank described its process and monitoring priorities as follows:

• Assess incoming inflation, activity, and financial-condition data against the medium-term inflation target.
• Track fuel-cost pass-through into other prices, including partial CPI information, and watch inflation expectations for signs of second-round effects.
• Monitor wage growth, employment, household consumption, credit, and the interaction between housing wealth and spending.
• Consider market pricing, wholesale rates, mortgage rates, and deposit rates as inputs to the assessment—not as substitutes for the committee’s own forecast.
• Tighten further if inflationary pressures prove persistent, and calibrate the path to incoming data and the economic outlook.

The committee expected important labour-market and inflation-related data before its next decision. The Governor also said New Zealand was expected to receive monthly inflation data by mid-2027. Fiscal forecasts included only decisions already made, not potential policy announcements.

Explicit cautions and disclosures

• The Governor warned that scammers use public figures’ images, fake news branding, and AI-generated material to promote fraudulent investments. He advised people not to click suspicious links or provide personal information, and to verify claims through official sources.
• He stated that the Reserve Bank does not provide investment advice to the public. No formal “not financial advice” disclaimer was given.

Presenters and sources

Presenters: Adrian Orr (Governor and Monetary Policy Committee Chair); committee members Karen Silk, Paul Conway, Haley Gorley, Prasanna Gayi, Carl Hansen, and Rebecca Williams.

Media questioners named: Jason Walls (One News); Zane Small (Stuff/Three News); Lucy Kremer (Reuters); Alice (interest.co.nz); Janie Tibshreni and Junaid Tufail (New Zealand Herald); Ainsley Thomson (Bloomberg); Tom Pullestringer (The Post); and Allison (interest.co.nz).

Source: Reserve Bank of New Zealand October Monetary Policy Review media conference.