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The Reserve Bank of New Zealand (RBNZ) on Wednesday increased its Official Cash Rate (OCR) by 50 basis points, from 4.75 per cent to 5.25 per cent, its highest level since 2008.

The central bank's Monetary Policy Committee (MPC) agreed the OCR needs to increase, as previously indicated, to return inflation to the 1-3 percent target range over the medium term, reports Xinhua news agency.

"Inflation is still too high and persistent, and employment is beyond its maximum sustainable level," said a Committee statement.

The level of economic activity over the December quarter was lower than anticipated and there are emerging signs of capacity pressures in the economy easing, it said.

The statement added that demand continues to significantly outpace the economy's supply capacity, thereby maintaining pressure on annual inflation.

The recent severe weather events in the North Island have led to higher prices for some goods and services, it said, adding this higher near-term CPI inflation increases the risk that inflation expectations persist above the target range.

New Zealand's economic growth is expected to slow through 2023, given the slowing global economy, reduced residential building activity, and the ongoing effects of the monetary policy tightening to date, the statement said.

This slowdown in spending growth is necessary to return inflation to target over the medium term, it added.