The New Zealand dollar jumped 1% to nearly 0.62 against the U.S. dollar after the Reserve Bank of New Zealand held its official cash rate at 5.5% and warned that rates could go higher to tackle inflation.
The kiwi dollar jumped to its highest level in nearly four months after the decision. The currency is down 2.5% so far this year, and is headed for its third straight yearly decline.
The central bank noted that inflation remained too high and said monetary policy will need to remain restrictive in order to control it.
"The official cash rate will need to stay restrictive, so demand growth remains subdued, and inflation returns to the 1 to 3 percent target range," the RBNZ said in its monetary policy statement.
"If inflationary pressures were to be stronger than anticipated, the OCR would likely need to increase further."
This was the fourth straight time the RBNZ held interest rates steady at a 15-year high. The decision was as expected by all 28 economists polled by Reuters.
New Zealand's consumer prices rose at a pace of 5.6% year-over-year during the third quarter.
The benchmark stock index S&P/NZX 50 rose 0.5% after the interest rate decision.