The Reserve Bank of New Zealand has increased its Official Cash Rate by 25 basis points and lifted its forecast track for short-term interest rates by as much as 50 basis points by early 2017.The central bank hiked as expected on Thursday to 2.75 per cent to become the first central bank in the developed world to tighten monetary policy this year in response to an economic rebound generating inflationary pressures.Dairy and commodity prices were near record highs and construction booms in Christchurch and Canterbury were stoking inflationary pressures as the economy's capacity for growth, the bank said. A surge in net migration was also adding to consumer and housing demand, the bank said."Growth in demand has been absorbing spare capacity, and inflationary pressures are becoming apparent, especially in the non-tradables sector," Reserve Bank Governor Graeme Wheeler said in the bank's March quarter Monetary Policy Statement.The bank forecast 90 day bill rates would rise by around 2.5 percentage points to 5.3 per cent by early 2017. The forecast track for the 90 day bill rate is seen as a proxy for the Official Cash Rate and it indicated the bank would raise the OCR by 1.25 percentage points to 3.75 per cent by the end of 2014, before raising it a further 1 percentage point in 2015.Elsewhere, the bank said its 'speed limit' on high Loan to Value Ratio mortgages appeared to have worked to moderate house price inflation. It noted house prices were flat in December and fell 0.3 percent in January in seasonally adjusted terms. It said the impact could be more 'front-loaded' than previously forecast.Wheeler told a news conference the bank's modelling suggested that if the high LVR speed limit had not been imposed from October 1 then house price inflation would now be around 11 per cent. Instead, it was now around 8.4 per cent, he said.The bank said it expected the forecast series of rate hikes through 2014 and 2015 would have more 'traction' in slowing the economy than when it last embarked on a series of rate hikes from 2004 to 2007 because a lower portion of borrowers were on long term fixed rates.About 73 per cent of mortgages were either on floating rates or fixed for less than a year. The average time to re-price mortgages was at 14 months, well below the 23 months seen in 2007 when the bank was frustrated that its rate hikes were not slowing the economy fast enough.The reaction from banks was faster than for previous hikes. ANZ increased its floating mortgage rate by the full 25 basis points to 5.99 per cent within two hours of the Reserve Bank's announcement. It also increased its 'Serious Saver' deposit rate by the full 25 basis points to 4 per cent from 3.75 per cent.Commonwealth Bank's ASB followed ANZ by the end of the day, increasing its floating mortgage rate by the full 25 basis points to 6.0 per cent.