New Zealand is expected to raise interest rates this week, the first developed economy in the Asia-Pacific region to begin policy normalisation, showing signs of overheating in a strong recovery unhampered by the Delta variant.

20 of the 24 analysts surveyed said the Bank of New Zealand would raise its official cash rate by 25 basis points to 0.5 per cent on Wednesday. One economist expects an interest rate hike of 50 basis points, while three economists do not expect any change. The market is also expected to raise interest rates because of growing concerns that labour shortages will release wage-driven inflation.

"it is clear that the New Zealand economy no longer needs extreme monetary stimulus," said Sharon Zollner, chief economist of the ANZ Bank New Zealand. "there are clear signs of overheating across the board, and the risks of the boom-bust cycle are high and rising."

Central bank governor Adrian Orr unexpectedly ended quantitative easing in July, indicating that the Bank of New Zealand is already worried that its stimulus measures could lead to overheating. Since then, unemployment has fallen to 4 per cent and private sector wage growth has risen to a 13-year high.

The Bank of New Zealand is set to become the first central bank in the Asia-Pacific region to act, ahead of the Bank of Korea, which has pledged to normalise policy in the coming months. The Bank of Korea will meet next week and may raise interest rates.