Brace yourself for higher mortgage rates sooner as the Reserve Bank signals it is prepared to move faster to head off inflation.
The Reserve Bank has lifted the official cash rate by 50 basis points to 1.5 per cent, saying its path of least regrets was to "increase the OCR by more now, rather than later."
It was the first double - 50bps - hike the RBNZ has made since May 2000.
That could see one to two year fixed mortgage rates topping six per cent in the coming months, according to property sector research company CoreLogic.
ANZ was the first bank to move its rates, announcing its floating and flexible home loan interest rates will go up 0.5 per cent to 5.54 per cent and 5.65 per cent (per annum) respectively.
Business floating and business overdraft base rates will also go up 0.5 per cent.
The Monetary Policy Committee was careful to state it still stood by the OCR path outlined in the full February statement.
That suggested the OCR would peak at 3.25 per cent early in 2024.
But today's move was a clear signal that the RBNZ is prepared to front load the hikes in an effort to get ahead of the inflation curve.
"We expect it to hike the OCR to 3 per cent by the end of this year," said Ben Udy at Sydney based Capital Economics.
That would be a sharp contrast with the RBNZ's February forecast which had it hiking rates to 2.25 per cent by the end of this year.
To get there Udy is forecasting six more rate hikes this year," one hike at every meeting along with another 50-basis point hike in May."
ANZ chief economist Sharon Zollner, who correctly predicted today's hike, also sees another 50 basis point move in May.
The committee's comment, "it is appropriate to continue to tighten monetary conditions at pace" was not inconsistent with the expectation of a follow-up 50bp hike in May, she said.
There were "no easy choices" for the RBNZ and there was a risk that moving this fast could "oversteer the slowdown" Zollner said.
"On the other hand, not authoritatively moving against broad-based inflation pressures ... would risk giving a further leg up to inflation expectations, making the job of reining in inflation that much harder."
The change in rates had been very rapid she said.
"The housing market is in full retreat, and consumers are very wary indeed."
For the housing market, the implications are clear, said Kelvin Davidson, Chief Property Economist, CoreLogic NZ.
"Even though mortgage rates have already been rising again in recent weeks, this process isn't over yet," he said.
"Many 'special' fixed-rate mortgages in the popular 1-2 year terms are currently in the range of 4-5 per cent, and it seems fair to suggest that this could end up in the range of 5-6 per cent over the coming months, perhaps a bit above."
He noted that many borrowers were still sitting on lower rates agreed last year or earlier.
"About 50 per cent of existing loans in New Zealand are up for renewal over the next 12 months, with a sharp repayment rise looming."
Financial markets took the double hike in their stride.
The 50-basis-point rate hike was not widely predicted by economists but the markets had priced in a 75 per cent chance of one happening, Fisher Funds senior portfolio manager David McLeish.
"While the magnitude of the rise would have surprised some, the bank's comment that it remained comfortable with the outlook for the OCR (as outlined in February) showed it was taking a more balanced approach to future rate increases, he said.
The forward interest rates track outlined by the Reserve Bank in February was lower than what the market had subsequently priced in.
"They do call out the fact that growth has slowed since the February meeting, so that's a bit of a hat tip to the fact that they need to get to a neutral rate quite quickly, but that they are also very cognisant of the impact that rising interest rates will have on the economy - not just inflation," McLeish said.
The New Zealand dollar rose 60 basis points to US68.93c immediately after the rate call. But by 4pm was already trading back at pre-announcement levels around US68.45.
While the 50bps hike would typically described as a "hawkish" move, it was sign of how "bizarre" the world was that the statement could also be viewed as dovish, said BNZ head of research Stephen Toplis.
In the language of monetary policy, aggressive moves to hike rates and curb inflation are described as hawkish and more cautious policy moves are described as dovish.
Despite today's hike signalling an aggressive intent to move rates up faster in the near term, the RBNZ's decision to stick with its February rate path meant there was now a stark contrast with more hawkish market pricing - which had a peak approaching 4.25 per cent, he said.
- additional reporting Jamie Gray