Interest rates are likely to rise every single time the Reserve Bank has an opportunity to do so over the next year if a key indicator is to be believed.
The official cash rate (OCR) was hiked for the first time in seven years in October, rising from a record-low 0.25 percent to 0.50 percent - otherwise known as a 25-basis point rise. The central bank at the time signalled further rises were likely with inflation rising and house prices spiralling out of control.
Investors appear to be putting their money where the Reserve Bank's mouth is, with movements on the bond market predicting the OCR to be five times higher in a year's time than it is now.
"The bond market is effectively a market where people like governments and businesses can borrow money,"Milford Asset Management portfolio manager Mark Riggall explained on The AM Show on Thursday.
"The interest they pay on that borrowing is where they expect interest rates to be in the future, not where are interest rates are now… looking at the bond market we can get a guide as to where we think interest rates might be in a year's time, two years' time or even 10 years' time."
Governments and businesses can raise huge amounts of money by issuing bonds, which pay out interest at a fixed rate until they mature, at which point the original value of the bond is paid back to the lender.
Like other assets, bonds can be bought and sold. If the interest rate for a bond is above what investors think they can get in the future from other investments, the value of the bond rises; if the interest rate is lower than what's expected to come, their value drops.
"At the moment bond markets in New Zealand are expecting the Reserve Bank to increase interest rates by 25 basis points - a quarter of a percentage point - every single meeting for the next eight, so that's 2 percent worth of rises over the next 12 months," said Riggall.
"That's quite a lot of interest rate hikes. There are similar moves happening in interest rate markets in Australia and the US. So the bond market is saying, 'Hey central banks - we think you're going to have to raise interest rates to fight this huge amount of inflation that we're seeing coming through the global economy at the moment.'"
Riggall said in October, New Zealand Government bonds dropped 2 percent in value, a "huge move".
Inflation is at its highest in a decade, driven by construction costs, a tight labour market and challenges in the supply chain. Raising interest rates makes borrowing more costly, dampening spending and reducing demand.
"Over the last year those bonds have fallen between 4 and 5 percent. So if you're invested in those bonds - as a lot of KiwiSaver investors are, particularly those who are invested in conservative funds - then they're experiencing losses in their portfolio."
About 13 percent of KiwiSaver funds are in conservative portfolios, according to a Stuff report in March, which noted some investors - likely close to retirement and looking to protect their investments - had already suffered losses.
The next Monetary Policy Statement from the Reserve Bank - and therefore next OCR announcement - is expected on November 24.