The Reserve Bank (RBNZ) is tipped to announce an eighth consecutive interest rate rise on Wednesday as breaking the cycle of inflation proves increasingly difficult.
It's expected to raise the official cash rate (OCR) by 50 basis points to 3.5 percent as inflation forces the central bank to continue down the tightening path.
RBNZ Governor Adrian Orr has said there was still more to be done to fight inflation.
As a result, economists are predicting borrowing costs will rise further.
"[We are expecting] another 50 basis point increase," said Cameron Bagrie, an independent economist. "Market expectations are saying the official cash rate could be around 4.5 percent by the middle of 2023 so the Reserve Bank is well and truly into what we call 'breaking the bones of the economic cycle.' To get inflation down, you need to dish out a few economic hits," he told AM.
Inflation in New Zealand climbed to 7.3 percent in July, driven by construction and fuel costs.
"We expect the RBNZ to repeat its recent language that it will continue to tighten monetary policy 'at pace,' and may say the committee anticipates a higher OCR path than what was projected in the August statement," said Westpac, which was also forecasting a 50 basis point hike.
Other central banks in the Asia-Pacific have also chosen to continue their hiking cycles.
In Australia, its central bank raised the country's cash rate by 25 basis points to 2.6 percent on Tuesday and was expected to continue its rate-hike cycle amid soaring inflation. Economists were also anticipating further monetary policy tightening In Singapore, where the benchmark interest rate stood at 2.34 percent.
With Orr pointing to a continuing tightening cycle, economists at ANZ also expected New Zealand's interest rates to rise by 50 basis points in the RBNZ's monetary policy statement (MPS) on Wednesday.
"All up, we expect a reiteration of the messages from the August MPS: the labour market is stretched, downside growth risks exist but the RBNZ is committed to getting inflation down, and while they’ve already done a lot, the RBNZ stands ready to respond to developments as they occur," ANZ said in its weekly economic newsletter.
"We continue to expect the OCR to reach a peak at 4.75 percent by mid-2023."
Economists at BNZ and ASB also expected a 50 basis point hike.
