In response the New Zealand dollar pushed higher to above US81.5c, the highest level since May 31.
Mr Wheeler kept the OCR unchanged at 2.5%, the same as the current Australian rate, but warned inflation was expected to rise towards the mid-point of the bank's 1% to 3% target range as economic growth strengthened.
''The extent and timing of the rise in policy rates will depend largely on the degree to which the momentum in the housing market and construction sector spilled over into broader demand and inflation pressures.''
The central bank expected to keep the OCR unchanged this year, he said.
Westpac chief economist Dominick Stephens said the Reserve Bank's new stance was more realistic.
''We have long argued that rising house prices and a construction boom would eventually provoke inflation pressures and would require a substantial OCR hiking cycle - similar to the experience of past decades.
''It is right for the central bank to warn markets and the populace at large that a period of higher interest rates is coming.''
Moving early might limit the eventual extent of OCR hikes that were required, he said. The anticipation of future OCR hikes had caused markets to push fixed mortgage rates up, which would slow the housing market earlier than OCR hikes on their own could have.
The Reserve Bank's higher loan-to-value ratios (LVRs) come into effect on October 1 and as expected, the bank revised down its house price outlook by 2.5%.
Council of Trade Unions economist Bill Rosenberg wanted more focus on employment from the Reserve Bank.
The slow fall in unemployment anticipated by the central bank reinforced the need for wider objects of monetary policy, he said.
Its forecasts still had the unemployment rate at 6% at the end of the year and above 5% out to 2016.
''These are well above levels we know we can achieve and they are levels we should not be happy with.''
The bank commented on the state of the labour market keeping down wage rises, Mr Rosenberg said. The CTU did not want unemployment being accepted as an anti-inflation tool and one that depressed the real living standards of New Zealand wage and salary earners.
The Reserve Bank forecasts saw annual economic growth (GDP) peaking at 3.5% in June next year before sliding back to growth rates of 2% by the end of the following year.
''While it was interesting to hear the governor saying the exchange rate was one of the factors he would take into account in deciding on future interest rate rises, he also made clear it was too high and burning off exporters and firms competing with imports.''
For a better-performing economy in the longer run, a clearer focus on the exchange rate was needed, Mr Rosenberg said.
ASB chief economist Nick Tuffley said the Reserve Bank noted developed economies faced an outlook of ''slowly improving growth'' while highlighting the slightly slower recent growth in China and Australia.
Much of the perceived risk in the international outlook appeared to have shifted to emerging economies in Asia.
As the reduction of Federal Reserve asset purchases - quantitative easing - neared, bringing with it an expected tightening of liquidity conditions, many emerging economies faced sudden exchange rate depreciation and very poorly-performing equity markets.
Large exchange rate falls might have an adverse affect on some of those economies, he said.
Despite clear risks remaining, New Zealand's trading partner growth was still expected to slowly improve over the forecast period, underpinned by accommodative monetary policy in the major economies.
The Reserve Bank believed the recent tightening in offshore credit conditions had not affected New Zealand's major banks. Strong deposit growth had reduced pressure on funding, conditions for which remained ''comfortable'', Mr Tuffley said.
