Reserve Bank governor Anna Breman gives market a nudge in 'unusual' move

Monday, 15 December 2025

Reserve Bank governor Anna Breman has swung into action, barely two weeks into the job, in a bid to temper market expectations that interest rate hikes could already be on the horizon.

Breman said in an unscheduled statement that financial market conditions had tightened since the central bank’s last monetary statement in November “beyond what is implied by our central projection for the official cash rate”.

The comments were taken by the market as a clear signal that markets had got carried away in assuming the official cash rate (OCR) would soon rise from its current level of 2.25%.

Westpac chief economist Kelly Eckhold said the market had been pricing in “two and a bit” OCR hikes before the end of next year before Breman’s comments, but the two-year swap rate fell 10 basis points after the remarks.

The New Zealand dollar fell in value by about a third of a US cent.

Both moves are signs that markets are tempering their expectations of rate rises.

Eckhold said Breman was pointing out the obvious but the purpose of the intervention was very clear.

The intervention was appropriate and signalled a bit of a step back to how things used to be done at the bank, he said.

“It is reasonable for the market to consider that the OCR will come up a bit quicker than what the Reserve Bank forecast. But the market reaction has been a bit over-egged.”

Though seemingly innocuous to monetary policy outsiders, Infometrics principal economist Brad Olsen said Breman’s words were “quite the statement”.

The key word was “beyond”, he said.

The message was: “Hey guys, you’ve gone a little bit too hectic. Maybe pull your heads in for a second.”

Former Reserve Bank governor Christian Hawkesby said on the day of the November Monetary Policy Statement — when the Kiwi dollar rose about half a US cent in the aftermath of what was viewed as a quite hawkish statement despite a 25bp rate cut — that the initial market reaction had come as no surprise to the bank, and it had expected some “volatility”.

But Olsen said wholesale rates had continued to rise since then.

“Expectations for a rise had not only increased, but also come forward nearly six months,” he said.

“Infometrics has been cautioning that interest rates will need to increase at some point, but we haven’t got it happening that quickly either.”

“My very simple view of what has happened is the markets up until the November statement have gone ‘There’s only one way, and it’s down’.

“The minute that maybe there’s no down, the market has started to speculate and go, ‘You know what? Up is the only next move, and let’s keep over beating ourselves until we make it happen’ three days ago. The market got way carried away, which is exactly the point of why the Reserve Bank’s had to come out and say something.”

Breman’s comment was not normal for the bank, but “I don’t mind”, Olsen said.

“There’s been a pretty clear view that’s emerged over the last week that the market’s been a bit out of step. The Reserve Bank governor has responded to it. We like information, so this is good.”