On Wednesday, the Reserve Bank of New Zealand (RBNZ) hiked rates by 25 basis points (bps) to over a 14-year high of 5.5%.

The central bank has indicated its most aggressive rate hiking cycle since 1999 has now come to an end, defying expectations it may forecast additional hikes, resulting in the New Zealand Dollar declining 1.25%, Reuters reports.

"The big surprise was leaving the OCR (official cash rate) forecast unchanged. It says they're done (hiking)," according to Imre Speizer, head of new strategy at Westpac. "So that is a major surprise."

He went on to say that the central bank's statement was highly dovish.

The Reserve Bank predicts the official cash rate to hit a peak at its current 5.5% level but will need to stay at a restrictive level until the middle of next year at least to ensure inflation returns to between 1% and 3%, as per the monetary policy statement.

New Zealand's central bank has remained focused on reining in inflation, increasing rates by 525 basis points since October 2021, the Reuters report adds. This has been the most aggressive policy-tightening run since the OCR was brought in in 1999.

Central bank governor Adrian Orr said during a media conference that there were indications that elevated interest rates already had the anticipated effect.

"It is quite nice to see some of the things we were hoping would already be here actually be here. And that is the lower surprise on GDP, the decline in inflation and all the indicators that suggest the interest-sensitive parts of the New Zealand economy are yielding," he said.

The RBNZ still forecasts the country's economy will contract in Q2 and Q3 this year, yet views the recession as shallow, reflecting a spending slowdown, helping to curb inflation.

The New Zealand dollar fell 1.25% to a three-week low of $0.6168 following the rate announcement.