The Reserve Bank of New Zealand has raised the official cash rate to 2.5 per cent from 2.25 per cent, where it has been held since November 2025.
Anticipated by most economists and money markets, the unanimous decision on Wednesday is the central bank's first rate rise since May 2023.
Although the Middle East conflict is expected to hit growth, New Zealand's gross domestic product has been strengthening in 2026 after contracting 1.1 per cent in the 12 months to June 2025.
Headline inflation was 3.1 per cent in March, above the RBNZ's target of one-to-three per cent, while the unemployment rate eased to 5.3 per cent.
The move higher follows a split decision at the bank's last meeting in May, when Governor Anna Breman used her casting vote to keep the cash rate on hold.
While unemployment remains relatively high and the oil supply shock could further weaken the labour market, the threat of rising inflation convinced the RBNZ monetary policy committee to move the official cash rate to a less stimulatory position.
"The committee agreed that it was appropriate to start reducing the degree of monetary stimulus to ensure that inflation returns to target over the medium term," it said in a statement.
"The committee noted that financial conditions had eased in recent weeks."
While global oil, gas and fertiliser prices had declined since the outbreak of the Iran war in February, it would take time for supply chains to adjust and inflationary pressures remained elevated, the committee said.
It also left the door open to more hikes.
Ahead of the meeting, markets had been pricing in a second hike in the second quarter of 2026, which would take the cash rate to 2.75 per cent.
"The committee agreed that while further OCR increases appear likely at upcoming meetings, their timing is highly uncertain," the statement said.Â
"Future OCR decisions will depend on the committee's judgement about how price-setting behaviour and excess productive capacity affect medium-term inflation pressures."
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