(Adds detail and policy context)
New Zealand's central bank raised interest rates by 50 basis points to a more than 14-year high of 4.75% on Wednesday, and said it expects to keep tightening further as inflation remains too high, a hawkish signal that sent the local dollar surging.
The Reserve Bank of New Zealand said it was too early to assess the policy implications of a devastating cyclone and floods in the country's North Island, and expects to look past the short-term price pressures stemming from the weather events.
The RBNZ continues to expect the cash rate to peak at 5.5% in 2023, according to the monetary policy statement (MPS) accompanying the rate decision.
"While there are early signs of price pressure easing, core consumer price inflation remains too high, employment is still beyond its maximum sustainable level, and near-term inflation expectations remain elevated," the central bank said in a statement.
The decision was largely in line with a Reuters poll, in which 20 of the 25 economists forecast a 50-basis-point rate hike.
The New Zealand dollar rose as high as $0.6246 after the decision, reflecting the hawkish tone of the statement, having traded as low as $0.6206 earlier.
Flash floods hit New Zealand's largest city of Auckland in late January and two weeks later Cyclone Gabrielle caused havoc across much of the North Islands. The two events left 15 people dead and have caused billions of dollars of damage.
While the rebuild will boost the economy and inflation - already an issue for the central bank - growth is set to slow in the short term as damage to crops and infrastructure hurt food exports and makes movement around the North Island challenging.
"It is too early to accurately assess the monetary policy implications of these weather events, given that the scale of destruction and economic disruption are only now becoming evident," the RBNZ said.
It continues to expects New Zealand to slip into a recession in the second quarter of this year, but sees growth rebounding in the first quarter of 2024, earlier than its previous forecast.
