Despite the Delta outbreak and extended lockdown, New Zealand's economy continues to run too hot for the Reserve Bank's liking.
That means, based on current projections, we should brace for as many as seven more rate hikes taking the official cash rate (OCR) to 2.5 per cent by the middle of 2023.
Markets have been forecasting that they might rise even higher.
"The time of cheap money is over, and interest rates are rising, swiftly," said Kiwibank chief economist Jarrod Kerr.
In its Monetary Policy Statement (MPS) released today, the RBNZ lifted the OCR by 25 basis points to 0.75 per cent.
With annual consumer price inflation expected to spike through 5 per cent in coming months some in the market were tipping a double hike of 50 basis points.
But Governor Adrian Orr made it clear today that the Bank's preferred path is a steady one of incremental increases.
The measured tone of the Monetary Policy Statement saw the kiwi dollar and longer-term wholesale interest rates ease.
"Overall, though, the tone of the statement was less hawkish than the market was expecting," said ANZ chief economist Sharon Zollner.
"[Although] the RBNZ's forecasts for growth, employment and the degree of inflationary stretch in the economy were all revised up significantly, there's certainly a lot more to the current inflation pulse than one-off cost bumps."
Orr indicated that the RBNZ views about half of the recent inflation surge as tied to global pandemic effects - like supply chain constraints and higher energy prices.
The RBNZ forecasts inflation to peak at 5.7 per cent in the first quarter of 2022, before moderating to falling back into its target range between 1 and 3 per cent over the next couple of years.
Orr and the committee noted that there were significant underlying domestic issues adding to inflation.
"For example, employment is now above its maximum sustainable level," the statement said.
In other words, the Reserve Bank labour market is currently too tight and the New Zealand economy continues to perform "above its current potential".
The RBNZ is forecasting unemployment to fall further, to a low of 3.2 per cent in the current quarter, before steadily rising to 4.1 per cent by 2024.
Even though it sees pandemic effects passing through in the near term the committee sees near-term risks to inflation "skewed to the upside".
It noted the risk that higher near-term inflation could become embedded in price-setting behaviour.
Asked about today's Government announcements on reopening international borders, Orr said they did not significantly impact the RBNZ's economic outlook.
Progress on that front had been broadly factored into its thinking, he said.
Despite a range of uncertainties being covered off in the statement, monetary policy was effectively "normalising", said Kiwibank's Kerr.
"Wholesale rates markets have factored in the higher rate path. And the wholesale funding costs for banks have risen sharply. Mortgage rates have risen in response, and we expect to see further hikes from here."
That could finally start to have some impact on house prices.
"With further OCR increases in the wind, the pace of mortgage borrowing cost rises will lift over 2022," said Jarden economist and investment strategist John Carran.
"This adds to a growing list of factors that could dampen the local housing market and economy next year, including reduced government support, tougher loan-to-value restrictions, increased taxation of housing investment, and wage growth likely lagging inflation."