NZ Reserve Bank hikes rates to 5.25 per cent

New Zealand's Reserve Bank has put its foot to the floor, raising the official cash rate by 50 basis points to 5.25 per cent.

A day after Australia's central bank held rates steady at 3.6 per cent, the RBNZ made its 11th consecutive OCR rise.

The rise was above the expectations of most banks, which envisaged a smaller 25 basis point move, but foreshadowed by the RBNZ in its most recent monetary policy statement.

Governor Adrian Orr cited the effects of Cyclone Gabrielle and Auckland flooding as a reason for Wednesday's hike.

"Demand continues to significantly outpace the economy's supply capacity, thereby maintaining pressure on annual inflation," he said.

"The recent severe weather events in the North Island have led to higher prices for some goods and services.

"This higher near-term CPI inflation increases the risk that inflation expectations persist above our target range."

Mr Orr said the rebuild from Cyclone Gabrielle, which has caused billions of dollars worth of damage, requiring major infrastructure rebuilds and property destruction, would then push inflation up in the medium term.

"The committee anticipates economic activity to be supported by rebuilding efforts in the aftermath of the weather events. The demand on resources is expected to add to inflation pressure by more than assumed," Mr Orr said.

New Zealand's consumers price index (CPI) inflation was last measured at 7.2 per cent in the December 2022 quarter, well above the RBNZ's target band of 1-3 per cent.

The OCR is now at its highest level since 2008, during the global financial crisis.

Local banks believed a deeper than expected contraction in GDP figures from the December 2022 quarter, when the Kiwi economy shrunk by 0.6 per cent, would give the RBNZ pause for thought on its rate cuts.

The monetary policy committee did consider a possible 25 basis point cut, but concerns over a fall in wholesale interest rates pushed them to a 50 per cent move.

Opposition leader Chris Luxon probed Prime Minister Chris Hipkins on the shift, asking the Labour leader how long he expected inflation to be above three per cent.

"That is ultimately a matter for the Reserve Bank," Mr Hipkins said.

ACT party leader David Seymour said New Zealand was performing poorly in comparison to Australia.

"Australia seems to be getting things under control, they've stopped hiking and the average floating interest rate there is 6.09 per cent. In New Zealand floating interest rates are about 8 per cent and show no signs of decreasing soon," he said.

"No wonder thousands of frontline workers are leaving for cheaper interest rates and higher wages."

The Greens said the latest hike showed the need for a wealth tax.

"RBNZ Governor Adrian Orr admitted in response to my questioning that these actions were intended to engineer a recession," Greens finance spokeswoman Chloe Swarbrick said.

"Lower income New Zealanders not only bore the disproportionate cost of getting through the pandemic, but are now carrying the bill of supposed recovery."