The Reserve Bank lifted the OCR to 3% today but suggested a pause may be coming for further hikes this year.
TVNZ Business Editor Corin Dann think the main banks will react quickly by pushing up floating mortgage rates by 0.25%.
"This time round it may come through quicker. Perhaps in June there was a bit of cat and mouse, there is a lot competition in the banking sector and the rates had been on old for a year so maybe nobody wanted to be the first to go."
Nearly 70% of Kiwi mortgages were floating or fixed for less than 12 months in May so most Kiwi households will feel an almost immediate financial impact from the OCR raise.
The kiwi dollar dropped from US72.60 to US72.17 immediately after the announcement.
Rate pause coming
Dann also said that Dr Alan Bollard's choice of words - although still very cautious - suggested the rate could be held in a later review this year.
"Today's statement includes the line that perhaps future hikes could be a little bit more moderate than was suggested in the June statement. That is perhaps signalling that maybe he is now going to have a pause in the three more potential hikes for the rest of this year."
An OCR pause would provide relief for those households with floating mortgages as their rates would stay below fixed rates for much longer. But those saving with banks or short term deposits are unlikely to see much of a rise in the rates they are offered.
Bollard said today that it was "appropriate" to continue to lift rates even though the economic activity he foresaw at the time of the June Monetrary Policy Statement has not quite eventuated.
The June statement said the Bank planned to gradually remove policy stimulus, given that gains in export volumes and an eventual recovery in residential and business investment were expected to see GDP growth remain robust.
Today Bollard admitted the outlook for economic growth had softened somewhat, but he felt it was still correct to continue to reduce the "extraordinary level" of support implemented during the 2008/09 recession.
"Overall, we continue to predict respectable near-term GDP growth, with manufacturing confidence remaining elevated and forestry exports continuing to expand. An eventual recovery in business investment will assist growth over the medium term."
ASB Chief Economist Nick Tuffley said he thinks Bollard's words do signal a pause but probably as late as possible in the year.
"The 3.5% mark would be the more probable point for a pause, which would imply at the release of the December Monetary Policy Statement. At 3.5% the OCR would still be delivering effective interest rates that are still unequivocally stimulatory."
Dann said today he expects the Bank will come in for plenty of criticism for raising the rate again so soon. Unions, farmers, some manufacturing groups and even some economists are now willing to be more vocal in their belief that New Zealand's economy is not growing.
"There has been a lot of criticism leading into this particular hike. (Those groups) are very worried and saying we can't cope with another hike."
He thinks that long-term Bollard still wants to bring the OCR back to a more normal setting (around 5%) but it is likely to take a little longer than Governor has previously thought.
Also today, Bollard reiterated the Reserve Bank's expectation that the coming rise in GST and other government-related charges would not have a lasting impact on inflation.
"However, the price and wage setting behaviour of firms and households will be monitored for evidence of any increase in inflation expectations," he said.
The RBNZ expects annual consumer price index inflation, which has been near 2% for the past five quarters, to temporarily push above 3%.