The RBNZ holds at 2.75% on a 4–3 vote. The rise is delayed rather than dropped, but the kiwi could stay under pressure until December.
Written by
Oliver Summers
The news
The Reserve Bank of New Zealand held its cash rate at 2.75%, when markets and most economists expected a rise to 3.00%. The vote was 4–3, and the Governor voted to hold. All seven members agreed that higher rates are likely to be needed, so the rise has been delayed rather than abandoned. But the next chance is 9 December, the election comes first, and the Bank held even though the kiwi has fallen about 3% since early September. That leans the kiwi lower until December. Conviction is moderate, because three of the seven members wanted to raise rates now.
What these numbers are
Official Cash Rate (OCR): New Zealand’s main interest rate. Higher rates make the kiwi more attractive to hold.
The vote: seven members decide. A 4–3 split means one vote decided the outcome.
Why the kiwi could go down from here
Rates are lower than markets planned for. Markets were counting on a rise today, and the next chance is six weeks away.
The Governor sided with the cautious camp. Anna Breman voted to hold, along with Carl Hansen, Prasanna Gai and Rebecca Williams. Their reasons: the two earlier rises still need time to work, inflation came in below forecast, and wage growth and inflation expectations are consistent with the target.
The Bank accepted a weaker currency. It noted the kiwi’s fall of about 3% since early September and held anyway. A weaker kiwi makes imports dearer, but the Bank chose to wait.
Demand at home is weak. Household spending is soft, house prices are still falling, employment intentions are weak, and demand is subdued outside the exporting regions.
The door to cuts is open. The Bank said a sharp global downturn could lead it to lower rates.
The weak spot
This was as close as a vote gets. Paul Conway, Hayley Gourley and Karen Silk voted for 3.00%, arguing that core inflation has been above target-consistent levels for some time and risks becoming entrenched. The Bank expects headline inflation to rise to 4.4% in the December quarter, with core measures already around the top of the 1–3% target band. And the statement was clear on direction: “All members agreed that tighter monetary policy is likely to be required, but remains conditional on the economic outlook.” If price pressures broaden before December, the rise is back on.
How to trade it
Chart first. The kiwi hit 17-year lows against its trading partners in mid-October. If it is already sold to an extreme on the 4-hour chart, there is no trade.
The reaction trade: short the kiwi a day or two after the decision, only on a chart trigger (a divergence, a high taken out, or a change of character followed by a break of structure). Close it before the 7 November general election, which falls on a Saturday, so the position is not held over that weekend.
What comes next
7 November: general election. Westpac notes that a Labour-led government could add a jobs goal alongside inflation to the Bank’s mandate, which could slow the pace of future rises.
9 December: Monetary Policy Statement, with new forecasts.
LEDGER · NZD −1
Sources
RBNZ statement and record of meeting, via ActionForex · RBNZ: decision dates · InvestingLive: what was expected · Pound Sterling Live: 17-year lows · Westpac via ActionForex: election and mandate · Elections NZ: 7 November
What would prove this wrong
Price data before December shows pressures broadening beyond fuel costs. That is the Bank’s own stated condition for raising rates, and it needs only one of the four to change their vote. The market comes to expect a December rise, which would close the gap that today’s hold opened.