The increase – the third increase of 50 basis points in a row – was largely expected by the market.
The Reserve Bank said its monetary policy committee agreed it remained appropriate “to continue tightening monetary conditions at a pace to maintain price stability and support maximum sustainable employment”.
“The level of global economic activity, coupled with the ongoing supply disruptions caused largely by both the ongoing Covid-19 and the Russian invasion of Ukraine, continues to generate global inflationary pressures,” the bank said.
New Zealand’s annual inflation rate reached 6.9% for the year to March, the largest move since 1990.
The wholesale interest rate market has priced in OCR at a peak of 3.94%, which matches the Reserve Bank’s own forecast peak interest rate.
The bank noted that food and energy prices were particularly affected by geopolitical tensions.
“However, the pace of global economic growth is slowing.”
In New Zealand, domestic spending remains supported by high employment levels, resilient household balance sheets in general, continued fiscal support and strong terms of trade.
The reduction in Covid-19 health-related restrictions also fueled increased demand.
“Labour and resource scarcity is also contributing to upward price pressures currently exacerbated by seasonal illness, a resurgence in Covid-19 cases and a net outflow of labor abroad.
“Under these conditions, demand for spending and investment continues to exceed supply capacity, with a wide range of indicators pointing to ubiquitous inflationary pressures.”
Employment remained above maximum sustainable levels and the Reserve Bank’s core inflation measures were around 4%, it said.
The committee said there is a short-term “upside risk” to consumer price inflation and emerging downside risks to economic activity in the medium term.
The New Zealand dollar had barely changed after the 2pm release and was trading at US61.27c.
The Reserve Bank, along with most central banks around the world, are tightening monetary conditions in an effort to stem rising inflation.