The central banks raised the rate for the first time since 2014.
It said the Official Cash Rate (OCR), rechistened the Monetary Policy Review (MPR), would rise from 0.25% to 0.50%.
The bank cited strong economic growth, full employment and inflation that was busting though its desired maximum towards the 4% mark.
But the chief executive of the Auckland Chamber of Commerce, Michael Barnett, said this was the worst possible time for the rate to be going up.
“I say that because there is a significant number of small and medium business out there which are cash poor, which are stressed financially, and which have incurred a huge amount of debt.
“Any additional cost for them is going to be harmful.”
In its statement, the Reserve Bank acknowledged that Covid 19 restrictions had badly affected some businesses in Auckland and a range of service industries more broadly – an apparent reference to the tourism industry.
But the broad thrust of the statement put this to one side and stressed New Zealand's overall economic strength.
Barnett said the Reserve Bank's optimism applied mainly to large export industries with strong balance sheets, but SMEs were suffering.
However another business group took a much more positive view.
Business New Zealand said the Reserve Bank had little option but to move on interest rates now, given the continued rise in inflationary expectations.
“The risk of not moving now on interest rates is that the RBNZ would have had to go much harder next year.” said its chief executive Kirk Hope.
Meanwhile, the rise is far from the end of the matter, according to the Kiwibank chief economist, Jarrod Kerr.
“This is just the beginning, we are expecting many more to come,” he said.
“We think it will end at about 1.5% by this time next year.”
Kerr said this could push retail rates that are currently 2% to 4% to between 4% and 6%.
That could be a shock to people who were new to home ownership and had never lived through a rate hiking cycle.
“The era of ultra low interest rates is definitely behind us.”
The Reserve Bank also said more rates rises would come, but gave no details.
ANZ has already moved to lift its floating rates 15 basis points. By contrast, the ASB said it would keep base business rate and its variable mortgage rate on hold.
However, most commercial rates have already moved up in anticipation of the RBNZ announcement, especially as it indicated two months ago that it wanted to raise rates and only the Covid lockdown was staying its hand.