The Reserve Bank of New Zealand kept its official cash rate unchanged at 2.75% at its October 2026 meeting, defying market expectations for a 25bp hike. The decision was split 4-3, as policymakers prioritised returning inflation to the 2% midpoint of the target range while avoiding unnecessary volatility in output, employment, interest rates and the exchange rate. Members agreed that further tightening would likely be needed, depending on the economic outlook, while highlighting risks to inflation. Wage growth remained subdued and medium-term inflation expectations stable, while administered price inflation was lower than expected in the September quarter. The board also flagged uncertainty over near-term inflation due to volatile oil and fuel prices. Higher global yields may reflect rising inflation expectations, war-related destruction and demand for capital to support AI investment, but could also accelerate a global downturn and trigger a rapid decline in the neutral interest rate.