The Reserve Bank of New Zealand has raised the official cash rate to 2.0 per cent, with warnings of more to come.
In a widely anticipated move, Reserve Bank Governor Adrian Orr shifted the rate by 50 basis points - the same double-hike as at April's meeting - to counteract widespread inflation.
Mortgage-holders could be looking at a world of pain, with the RBNZ revising up forecasts for the official cash rate.
Previous projections had the OCR on track to hit 3.4 by the end of next year, but the new monetary policy statement has rate rises coming harder and faster: reaching 3.9 per cent next June and staying there for a year.
"A larger and earlier increase in the OCR reduces the risk of inflation becoming persistent," Mr Orr said in a statement.
From a basement low setting of 0.25 per cent following COVID-19's arrival, the cash rate has been raised at the bank's last five meetings and is now at its highest level since 2016.
All major banks and analysts predicted the 50 basis point move.
Consumer price index inflation has reached 6.9 per cent in New Zealand, a 32-year high, with domestic and foreign pressures fuelling price rises.
"Headwinds are strong," Mr Orr said.
"Heightened global economic uncertainty and higher inflation are dampening global and domestic consumer confidence.
"Asset prices, in particular house prices, have also declined, reflecting in part higher mortgage interest rates and increased supply of housing."
In last week's budget - which included $NZ350 ($A320) handouts to struggling Kiwis - Treasury tipped 6.9 per cent to be the inflation peak.
The RBNZ agrees, tipping inflation to drop to 4.4 per cent by next March, and 2.5 per cent by March 2024.
Cost of living has developed into the biggest political issue in New Zealand, and opposition parties were quick to tie Jacinda Ardern's Labour government to the rate rise.
"This is the first time ever the Reserve Bank has increased the OCR by 50 basis points twice in a row, reflecting just how severe inflation has become," opposition finance spokeswoman Nicola Willis said.
"We've known since last year - well before the Russian invasion of Ukraine - that New Zealand had an inflation problem, but the government's only response has been to put more fuel on the fire with more spending."
The RBNZ is charged with two policy remits: keep inflation between one and three per cent over the medium term, and support maximum sustainable employment.
On the second front, at least, it is succeeding, with the unemployment rate at a low 3.2 per cent.
New monthly jobless figures are expected on Thursday.
Australian Associated Press
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