The official cash rate has been lifted 50 basis points to 5.25% by the Reserve Bank of New Zealand.
An increase was widely tipped by economists as the central bank continues with its effort to try and reduce inflation, which sits at 7.2%, although many were tipping a hike to 5%.
It's the 11th straight increase in the OCR.
"The Committee agreed the OCR needs to increase, as previously indicated, to return inflation to the 1-3 percent target range over the medium term," the bank said in a statement.
"Inflation is still too high and persistent, and employment is beyond its maximum sustainable level.
"The level of economic activity over the December quarter was lower than anticipated in our February Monetary Policy Statement and there are emerging signs of capacity pressures in the economy easing. However, demand continues to significantly outpace the economy’s supply capacity, thereby maintaining pressure on annual inflation."
Those on floating mortgages are likely to feel today's shift the most.
"In terms of long-term mortgage rates, a lot of banks have already priced this 25 basis point move in," Greg Smith of Devon Funds said before the announcement.
"The big thing is what people are paying compared to a couple of years ago when rates were .25% — you're looking at $13,000 to $15,000 more a year."
Read more: 'Don't ask, won't get' - how to get lower mortgage rates
It was likely New Zealand was already in recession, with consumers worried about the cost of living and businesses feeling less confident about the future. They are now less concerned with labour shortages and more with sales.
The Reserve Bank of Australia this week kept its rate at 3.6%, saying inflation may have peaked.
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