The Reserve Bank of New Zealand increased its official cash rate by an expected 50bp to 3.5%, an eighth successive rise, while signalling more increases ahead to contain inflation.
In contrast to Tuesday's smaller-than-expected 25bp Reserve Bank of Australia OCR increase, which provided an overnight boost to western rates markets, the RBNZ considered a larger 75bp hike before opting for the half-point rise predicted by all 24 economists in a Reuters poll.
"The committee agreed it remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and contribute to maximum sustainable employment. Core consumer price inflation is too high and labour resources are scarce," according to today's statement.
The MPC meeting minutes underlined concerns about a potential wage-price spiral as the jobs market remained "very tight" with negative net migration helping to contain labour supply.
"Some members noted that there may be changes in wage setting behaviour in an environment of higher headline inflation,” the minutes warned.
Headline CPI jumped 1.7% in the second quarter as the annual rate climbed from 6.9% to a higher-than-expected 7.3% – a 32-year peak and further beyond the Bank's 1%–3% target range.
In August, the RBNZ projected the OCR peaking at 4.1% by the middle of 2023 but Capital Economic expects it to reach 4.5% by then following a further 50bp increase in November and two subsequent 25bp rises next February and April.
New Zealand government bonds responded well to today's move and accompanying statement with two-year, five-year and 10-year benchmark yields currently down 9bp, 7bp and 5bp on the day at 3.94%, 3.99% and 4.04%.
The latest OCR increase follows four 50bp rises in April, May, July and August, which came after three 25bp increases in October 2021, November 2021 and February.
New Zealand was the fourth OECD country to lift interest rates since the Covid-19 outbreak, after South Korea, Norway and the Czech Republic.