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Reserve Bank governor Graeme Wheeler will probably keep the official cash rate unchanged at a record low this week because there is little sign renewed life in the housing market and Christchurch's rebuild is stoking inflation yet.
Mr Wheeler will leave the OCR unchanged at 2.5% on Thursday, according to all 12 economists in a Reuters survey. Looking out over the next 12 months, the median estimate is for him to begin hiking rates in the third quarter of 2013.
Some economists say he has room to cut rates in his first monetary policy statement since taking the bank's helm.
Recent figures have shown an unexpected decline in third-quarter retail sales, the unemployment rate has reached a 13-year high of 7.3% and inflation has slowed to a 0.8% pace – below the central bank's target band.
Yet traders are betting on just an 18% chance of a cut this week, based on the overnight interest swap curve.
"An environment of weak near-term inflation would ordinarily prompt serious consideration of an OCR cut," says Nick Tuffley, chief economist at ASB, in his preview of this Thursday's monetary policy statement.
But the rebuild of Christchurch and "increasingly heated state of parts of the housing market" suggests that "the medium-term outlook for inflation is not nearly as benign as the current headline rates".
Mr Wheeler may be in no rush to move on interest rates with the New Zealand dollar staying stubbornly high and above the Reserve Bank's forecast track on a trade-weighted basis.
The TWI was recently at 73.41 and is set to close out the fourth quarter at a higher average level than the 72 forecast in the central bank's September MPS, keeping a lid on imported inflation.
He will also be concluding his review with no clear sign that the US Congress will find a way to avoid the fiscal cliff that would start on January 1, stalling the world's biggest economy.
And while there is progress on aid for Greece, the euro region's woes are wider and will take longer to resolve.
"Global economic sentiment has improved slightly, but the RBNZ will probably refer to the fragility of the situation and the dangers of the US fiscal cliff," says Dominick Stephens, chief economist at Westpac Banking Corp.
He expects the forecast track for the 90-day bank bills to be broadly unchanged from the September MPS and "the main messages will be similar to previous missives".
The 90-day bill rate was last at 2.67% and has tracked in a range of 2.63% to 2.74% since the start of June. The September MPS has the 90-day rate averaging 2.7% for the next three quarters.
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