RBNZ’s Breman Signals No 2026 Rate Hike, Countering Market Bets

Anna Breman, Deputy Governor of the Reserve Bank of New Zealand, has publicly challenged growing investor expectations of a 2026 interest rate hike, underscoring the bank’s focus on economic stability over premature tightening. Speaking at a policy forum in Wellington, Breman highlighted that core inflation remains above the 2% target, with the latest data showing a 3.1% year-on-year increase in the Q3 consumer price index. Despite some improvement in labor market indicators, she noted that wage growth remains elevated, suggesting underlying inflationary pressures persist. The central bank’s current policy rate stands at 5.5%, unchanged since mid-2024, and Breman reiterated that no decision to raise rates before 2026 is anticipated. Market participants had priced in a 42% chance of a rate hike by Q2 2026, based on futures contracts, but Breman’s comments have driven that probability down to 23% as of late December 2025. This shift reflects a growing consensus that New Zealand’s economic outlook—marked by subdued GDP growth of just 0.8% in the last quarter—requires continued monetary support. Investors in New Zealand government bonds have responded with a notable rally, pushing the 10-year yield down to 4.01% from a high of 4.38% earlier in the month. The New Zealand dollar has weakened, trading at 0.5850 against the U.S. dollar, its lowest level in over a year. Financial institutions, including ANZ and BNZ, have adjusted their forecasts, now expecting the next rate move to be a cut in late 2026 rather than a hike. The central bank’s emphasis on data dependency and downside risks to growth has reinforced the market’s recalibration.