The Reserve Bank has delivered a jumbo-sized interest rate rise of 75 basis points and considered a full percentage point as it forecast a recession was likely in its battle to combat inflation.
The Official Cash Rate (OCR) was lifted to 4.25 percent, the highest level since December 2008, the biggest single rise since the OCR was established in 1999 and the ninth consecutive rise.
The rise had been expected as the central bank continued to combat 32-year high inflation, but the monetary policy committee looked at all options between 50 basis points and 1 percentage point rise.
"The committee agreed that the OCR needs to reach a higher level, and sooner than previously indicated, to ensure inflation returns to within its target range over the medium-term.
"On the balance of risks, the committee agreed that a 75 basis point increase was appropriate at this meeting.
"Core consumer price inflation is too high, employment is beyond its maximum sustainable level, and near-term inflation expectations have risen," it said.
The final statement mirrored previous decisions this year highlighting the strength of the economy, the jobs market, household spending, and the need for "resolute" action to control high core inflation.
"Committee members agreed that monetary conditions needed to continue to tighten further, so as to be confident there is sufficient restraint on spending to bring inflation back within its 1-3 percent per annum target range."
Projections accompanying the statement had the cash rate rising to 5.5 percent by September next year and no hint of a cut before late 2024.
Among economic forecasts were four quarters of economic contraction - a year-long recession - starting in the middle of next year.
The MPC statement said the recession was necessary to get inflation back to its target band.
"Members agreed that the exact timing and extent of negative GDP growth was difficult to predict, but historical evidence suggests risks are skewed toward a likely short period of contraction."
At the previous review of the OCR on 5 October, it was raised by 50 basis points to 3.5 percent, a rate last seen in April 2015.
ASB chief economist Nick Tuffley told RNZ earlier this week that the OCR was expected to rise even further in the new year - to levels not seen since the global financial crisis.
He predicted the cash rate would peak at 5.25 percent in the first half of 2023, but Westpac acting chief economist Michael Gordon said its forecasts were for a slightly lower peak of 5 percent.
Inflation has soared over the past year, hitting a 32-year-high of 7.3 percent in the year to June before declining slightly over the subsequent quarter, and consumers are feeling the squeeze as food prices and mortgage rates rise.