RBNZ's Breman says further hikes may extend to restrictive territory

Breman's press-conference comments went some way toward reversing the dovish take on the hold. With the governor signalling hikes at the meetings ahead, possibly into restrictive territory, December pricing should climb back, front-end yields should gain, and the New Zealand dollar should recover part of its recent fall. The governor's open worry that a weak currency could add to imported inflation gives the kiwi some underlying support, as further depreciation would increase the chance of a rate rise. Oil is the key swing factor: fuel has already pushed inflation toward 4.4%, so a further jump in crude — particularly if the United States strikes Iran and the conflict escalates after the midterm elections — would make a December hike considerably more probable. Her guidance likewise cuts the policy distance to the RBA, a shift that could keep AUD/NZD under pressure after this morning's divergence.

---

After the RBNZ kept its rate unchanged, Breman used the press conference to tell markets not to over-interpret the move: further rises are probable and could exceed what was planned.

Summary:

• Reserve Bank Governor Anna Breman said further rate rises are probable at upcoming meetings, and tightening could extend even into restrictive territory.
• Members concurred that a tighter stance will probably be needed, depending on how the economy evolves, and discussed whether the OCR might have to exceed its projected path.
• Breman said members are worried that a persistent drop in the kiwi could feed imported inflation.
• She said the decision rested on the economic outlook, though market pricing was also considered, and pay growth is still below the pace that would be consistent with the inflation target.
• Members also discussed the possibility of a correction in AI-driven market assets.
• Partial inflation readings and labour data will carry weight before the December Monetary Policy Statement.

Speaking a few hours after the Reserve Bank of New Zealand surprised markets by leaving the official cash rate at 2.75%, Governor Anna Breman adopted a hawkish tone at her media conference, saying further increases are likely at future meetings and that policy may enter restrictive territory.

According to Breman, the Monetary Policy Committee accepted that tighter policy is likely to be needed, depending on how the economy develops. More increases are probable at the upcoming meetings, she said, and extra tightening might be necessary even if it pushes rates into restrictive territory — a setting where borrowing costs are elevated enough to actively slow the economy, not just remove stimulus. She further said committee members discussed whether the OCR would have to rise beyond the path currently projected.

The exchange rate was a major focus. Breman said the committee discussed the kiwi's decline and is concerned that prolonged weakness could feed imported inflation. The RBNZ's statement noted that the trade-weighted exchange rate has fallen by around 3% since early September, while fuel prices have moved higher again on the back of disruptions in global energy markets.

Breman attributed the choice to hold rather than raise rates to the economic outlook, while allowing that market pricing, which implied about a 90% chance of a hike, had also been reviewed. The conditions for getting inflation back to target are still good, she said, citing pay increases that remain below what would line up with inflation at the 2% midpoint. That reinforced the majority position in the 4-3 vote, which argued that the two most recent rate increases give the committee scope to gauge their effects.

The governor added that the committee discussed the danger of a correction in AI-linked market assets, extending the RBNZ's warning that financial stability risks have risen because some AI investment involves high debt and opaque financing structures.

Looking ahead, Breman said partial inflation indicators and labour market data over the coming weeks will be important to the committee's review. The next policy decision will come with the December Monetary Policy Statement, which is due to include updated forecasts and a fresh projected OCR path.

The press conference delivered a mixed message to markets: the decision itself tilted dovish, while the governor's guidance leaned hawkish. With a minority already favouring a hike and Breman now flagging increases as likely, December is taking shape as a live meeting, particularly if fuel prices remain elevated and the currency stays under pressure.