The Reserve Bank of New Zealand governor Don Brash has stepped down after 14 years in the top job to make a new career for himself as a politician.

"I have been invited to seek nomination for the [opposition] National Party as a candidate in the upcoming general election, and I have decided to accept that invitation," Mr Brash said.

Mr Brash's surprise resignation sent the bond markets soaring as investors speculated that the departure of the tough inflation beater could mark a move towards a more relaxed monetary policy.

"Judging by the price action... maybe we won't see as hawkish an approach to monetary policy management," said one bond dealer.

Careful caretaker?

Last week, Mr Brash raised interest rates for the second time in a month in order to contain inflation, as set out by a 0-3% target range.

Mr Brash, who will run as an opposition politician during the forthcoming general election, will not take part in the central bank's interest rate setting meeting on 15 May.

"A big increase in the official [interest] rate and I could be accused of trying to sabotage the government. A small or no increase and I could be accused of trying to curry political favour, so of course I will take no part in that decision," said Mr Brash.

Investors said it was unlikely that deputy governor Rod Carr, who will step in as a caretaker governor until a permanent replacement has been found, would raise interest rates.