Economists say the future direction of interest rates in New Zealand is now linked to how effectively Europe deals with its deepening and tumultuous debt crisis.
The Reserve Bank kept the official cash rate at a record low of 2.5% on Wednesday, due to Europe's woes and a subdued domestic economy.
Most economists expect the cost of borrowing to start slowly rising from the middle of next year, but many stress a cut can't be ruled out either.
Reserve Bank Governor Alan Bollard says uncertainty about how the European crisis will play out is making it very difficult to predict how New Zealand's economy will fare.
Dr Bollard says the bank will be monitoring euro-area developments very carefully, given how quickly the situation could change.
He says the most likely outcome at this stage seems to be a 'euro muddle through', but he doesn't believe things will collapse.
"But there's certainly a real possibility that you could get Greek exit and that could either be handled tidily or in a very untidy situation which leads to further contagion and that would be more concerning".
BNZ head of research Stephen Toplis says New Zealand continues to perform remarkably well despite the very messy and uncertain global situation.
"We are not suffering from the chaos that many parts of the world are suffering from with ... huge declines in output, very high unemployment rates and significant falls in house prices and wealth generally. Things are a little bit difficult here, but we are still progressing".
The Reserve Bank also pared its economic growth forecasts and lowered projections for the 90-day bank bill rate - which is considered a proxy for where the Official Cash Rate is heading.
But Mr Toplis is not reading too much into that and says although it recognises that things are more difficult than would have been expected, the most important message is that they remain on a tightening bias.
OCR raise expected next year
TD Securities head of Asia Pacific Research, Annette Beacher, agrees the Reserve Bank's next move will be to be to lift the Official Cash Rate - probably in March next year.
But she admits that with so much uncertainty, a cut can't be ruled out either - and it'll be a big one if Greece leaves the euro.
She says Dr Bollard mitigated expectations for a new term cut saying that the housing market has picked up and the Canterbury construction project lies ahead - two reasons not to ease the cash rate at present.
"However, there's still plenty of powder at 2.5% to cut cash rates by 50 or even 100 basis points should we see some sort of crisis or contagion or banking run or another freezing of financial markets".
She says the Reserve Bank is obviously willing and prepared to join those efforts if required.
Ms Beacher says all eyes will be on the New Zealand markets on Monday, as they are the first to open after Sunday's elections in Greece.
