The Reserve Bank of New Zealand has hoisted the country's official cash rate by 25 basis points to sit at one per cent.
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The hike at Wednesday's meeting of the Reserve Bank's (RBNZ) monetary policy committee is the third consecutive 25 basis points lift, and widely tipped by economists as the country grapples with generationally-high inflation.
"The committee agreed it remains appropriate to continue reducing monetary stimulus so as to maintain price stability and support maximum sustainable employment," governor Adrian Orr said.
The RBNZ's mandate is to keep inflation within one and three per cent.
In bad news for Kiwi households, Mr Orr said consumer price index (CPI) inflation, which hit 5.9 per cent last month, is going to get worse before it gets better.
The bank's prediction is a peak of 6.6 per cent in the March quarter, before a gradual reduction back under three per cent in 2023.
That higher inflation is also likely to mean higher interest rates.
The RBNZ has revised its medium-term cash rate tracking, with last year's prediction of a peak of 2.6 per cent shifted upwards to 3.5 per cent.
Every major bank predicted the interest rate lift, with several saying a raise of 50 basis points would also be considered by the RBNZ.
Mr Orr revealed it was a "finely balanced decision" which landed on 25 basis points by consensus in keeping with its "least regrets" policy.
"When considering the case for a 50 basis point increase, the committee noted the high starting point for inflation and the drift upwards in measures of inflation expectations," he said.
"The committee agreed that maintaining stable longer-term inflation expectations near the midpoint of their target would greatly assist their purpose."
Rates were raised at meetings in October and November, and those projections suggest rates will go up at meetings across 2022.
The RBNZ is also forecasting a dip of 5.1 per cent in the housing market this year after a 27.4 per cent jump in 2021.
"House prices are assumed to decline by about 9 per cent from the end of 2021 to mid-2024, towards more sustainable levels," Mr Orr said.
The bank also announced on Wednesday it will reduce its holdings in government bonds.
Australian Associated Press