The New Zealand dollar plunged against the Australian and US dollars on Wednesday, October 28, after the Reserve Bank unexpectedly held the Official Cash Rate (OCR) at 2.75%, despite widespread expectations of an increase.
As of approximately 2:25pm, with afternoon trading continuing, the Kiwi had fallen to around US56.1 cents, down 1.3% on the day, while dropping to approximately AU79.5 cents, a decline of 1.6%.
The decision followed a narrow 4–3 vote by the Reserve Bank's Monetary Policy Committee. Four members supported keeping the OCR unchanged, while three favoured raising it by 25 basis points to 3%.
Financial markets had overwhelmingly expected another increase, with traders pricing in a high probability of a rate rise ahead of the announcement.
The decision comes despite annual inflation remaining above the Reserve Bank's 1–3% target range. Inflation eased from 4.1% in June to 3.7% in September, although elevated fuel prices continue to threaten further increases.
The sharp decline in the Kiwi dollar could add to inflation pressures by increasing the cost of imported goods, particularly fuel. Meanwhile, Australia's annual inflation rose to 4.3% in September, strengthening expectations of another Australian interest rate increase and adding further pressure to the Kiwi against the Australian dollar.
The OCR was last increased in September, from 2.5% to 2.75%. The Reserve Bank's next scheduled monetary policy decision is December 9.
