The kiwi was softer over theweek, largely as a result of theshock decision by the RBNZ toleave the OCR unchanged at2.75% on Wednesday, with thecurrency selling sharplyimmediately after theannouncement.On the RBNZ rate decision, it wassplit 4 to 3, with Breman, Hansen,Gai and Williams voting to hold,as Gourley, Conway and Silkvoted for a 25bps hike. The majority felt the two earlierhikes need more time to work,pointing to Q3 CPI of 3.7% thatwas down from 4.1% in Q2 andsofter than the Bank expected,subdued wage growth, andindirect effects from higher fuelprices that have so far beensmaller than feared. Weak household spending and anincreasingly fragile globalbackdrop added to the case forpatience.
The inflation picture is stillmoving the wrong way though.The Bank now sees annualinflation reaching 4.4% in theDecember quarter, above ourown forecast of 4%, while coremeasures sit around the top ofthe 1 to 3% target band andprice increases have broadenedacross the CPI basket, with 56%of items rising by more than 3%over the year.The Committee was united insaying tighter policy is likely tobe required, although it stressedthis remains conditional on theoutlook and flagged thatinformation over the next sixweeks could move the stance ineither direction.We now expect the RBNZ toraise the OCR by 25bps inDecember, with furthertightening in 2027 possibledepending on the data. Aweaker kiwi and higher fuelprices add to the inflation risks,so we think the bar for anotherhold is high. A sharpdeterioration in the globalbackdrop or a clear fade indomestic pricing pressureswould change our view.
Global central banks were the main focus this week, led bythe Fed.The Fed held rates at 3.75 to 4.00% as expected, withGovernor Cook and Cleveland Fed President Hammackdissenting in favour of an immediate 25bps hike. Thestatement had a hawkish tilt, with the Fed upgrading itsdescription of economic activity to strong and addinglanguage that we read as a clear nod to a hike inDecember. Chair Warsh gave no explicit signal, but futuresprice around an 85% chance of a move at the 8 to 9December meeting and we continue to expect one more25bps hike, with limited need for tightening beyond that in2027. Warsh also announced that a small number of futuremeetings will be devoted to strategy only with no ratevote, starting with one in 2027, which we see as anotherstep towards dialling back forward guidance.
The decision was followed by stronger GDP data for Q3,which showed the US economy growing an annualised3.4% against 2.2% in Q2 and a consensus of 3.2%. Growthwas largely driven by AI related business investment andresilient spending from higher income householdsbenefiting from stock market gains. The print givesRepublicans a welcome boost just days before themidterms, though forecasts and prediction markets stillpoint squarely to Democrats winning the House and favourthem in the Senate.The ECB left policy rates unchanged and kept its meetingby meeting approach, with President Lagarde retaining ahawkish bias by noting the Governing Council hadconsidered a hike. The statement did flag that highergovernment bond yields will weigh on growth and inflation,but market pricing for further hikes was little changed onthe day. December remains live, with Lagarde saying the“direction of travel” is clear and the new projections likelyto show higher inflation, so we still expect a 25bps hike inthe deposit rate to 2.75% at the next meeting, although weare unconvinced of the need for further tightening in 2027.Lagarde also announced she will leave the ECB inFebruary, with Pablo Hernandez de Cos and Klaas Knotthe frontrunners to replace her.
The BoJ held at 1.25% as widely expected, though the 8 to1 vote saw Takata dissent in favour of a hike to 1.5%,arguing that underlying inflation has reached the pricestability target and the Bank needs to move faster towardsneutral. The quarterly outlook report left the fiscal 2026CPI forecast unchanged at 2.5% and noted that coreinflation is likely to stay near levels consistent with thetarget, with risks to prices skewed to the upside.Of the five G10 central bank meetings, the BoC was theonly central bank to move rates, raising its overnight rateby 25bps to 2.5%. The bank pointed to stronger thanexpected growth, solid consumer spending, a rebound inoil and gas investment and a recovery in sectors hit by UStariffs, which outweighed a rise in the unemployment rateto 6.5%. It also warned that cost pass through could keepinflation more persistent into 2027 and left the door opento further hikes while saying it will proceed carefully, withmarkets seeing an even chance of another increase inDecember.
On oil markets, Brent crude prices ended the week littlechanged as diplomatic efforts to end the Middle Eastconflict stepped up. Diplomacy eased fears of a supplydisruption, with Vice President Vance contacting Iran’ssecurity council, and President Trump saying negotiationsare ongoing through mediators. Rising Saudi loadings alsohelped some supply pressures, though Gulf nations werewarned earlier in the week to prepare for a short, intensemilitary campaign. Fuel products remain the biggerpressure point, with Ukrainian strikes on Russian refineriescompounding the Middle East disruption and inventoriesdrawn down so quickly that the price spike no longer lookstemporary.
