Last week the Reserve Bank of Australia hoisted its cash rate and speculation has been rife as to whether the RBNZ would be the next to move.
Economists think that is unlikely pointing to the growing economic divide between Australia and New Zealand as the reason behind this thinking.
ANZ/National Bank says NZ falls short in comparison to Australia on a range of indicators and sees potential for the opening up of a wide policy gap between the two. With the NZ dollar being "dragged" up by the Australian, it expects the Reserve Bank of NZ (RBNZ) will hold its position in the October Review by keeping interest rates low for an extended period. When NZ rates do rise, it predicts the Official Cash Rate (OCR) will peak at 5.5%.
The ASB Business Weekly also pours cold water on the idea that just because the Aussies have moved, the RBNZ will automatically follow.
"Ultimately it is the inflation outlook that will dictate when the RBNZ will lift the OCR," it says.
In contrast to Australia, the NZ economy has shrunk 3% since the end of 2007, it points out.
"The starting point for inflation in NZ is of disinflationary, rather than inflationary forces," it says.
However, the ASB economists warn there is a lesson for NZ in the RBAs move: namely that there comes a time when central banks become uncomfortable with leaving rates at such low levels.
"The RBNZ could also opt for a relatively early but gradual removal of some stimulus," it warns.
The BNZ Capital Markets Outlook states it expects the first OCR rise to be around mid-2010.
"To be sure, the Bank would probably now admit it can't hang off the full twelve months, simply because of the improving news. But to come out relatively soon and sanction the near 200 basis points of OCR hikes now priced by late-2010, including 25 point hikes in each of the first two meetings next year, would be for Alan Bollard to abandon his framework," it says.
"We don't believe anything has gob-smacked the RBNZ to that extent, or will do so to the upside over the coming months."
The Westpac Weekly Commentary describes the RBA's move as underscoring the differences between the Australian and NZ economies.
It suggests borrowers should "seriously consider" fixing now and says that spreading the loan over a mix of terms is a good way to reduce overall risk in the current environment.
