The Reserve Bank releases its first monetary policy statement this week and the only issue is not if it raises the official cash rate (OCR), but by how much.
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The consensus is for 25 basis points (a quarter percentage point) rise to 1 percent, although the odds of a 50 basis point rise are about 30 percent.
The reasons for the rise are baked in, with inflation at a 30-year high of 5.9 percent, and likely to head even higher, and a red hot labour market, the central bank needs to keep unwinding the emergency stimulus it delivered when the pandemic hit.
ASB senior economist Mike Jones said expectations were the Reserve Bank (RBNZ) must, and will, progressively raise the OCR.
"From here, the RBNZ just needs to deliver on expectations to sustain this tightening in financial conditions and lean against increasingly rampant inflation pressure."
The RBNZ stole a march on most central banks in developed economies with rate rises in September and November, which took the OCR from the record low 0.25 percent to 0.75 percent.
Its forecasts in November pointed to the OCR settling about 2.5 percent next year, but mainstream bank economists are picking a 25 basis point rise at each of this year's seven reviews.
"The endpoint of the OCR track is also likely to be lifted, closer to 3 percent, to ensure markets know the RBNZ's desire to tackle inflation," said Kiwibank chief economist Jarrod Kerr.
Not too fast
But Fisher Funds head of fixed income David McLeish said the RBNZ had to ensure it did not overdo the tightening of policy, especially since a good portion of the inflation was coming from supply side causes, such as supply chains disruptions, global oil prices, and shortages of imported goods, which raising interest rates would not fix.
He also noted that it usually takes anywhere between 9 and 18 months for interest rate rises to work their way through the economy and be effective, in which case the two that the RBNZ have already done have yet to be felt.
"If they were to hike another seven times in seven meetings through to November, I think they would be well ahead ... they need to pause, recalibrate and let the economy catch up and see what the impact is," McLeish said.
He said going too far, too fast risked hammering household budgets too hard.
The most immediate impact of higher rates would be felt by borrowers on floating and short-term fixed interest rates, but given the rise in interest rates already, the impact might be less severe.
ASB's Jones said much of the anticipated rise in the OCR had already been "baked into" retail housing rates, but undoubtedly heavily indebted recent first-home buyers would feel a squeeze.
As for house prices themselves, while not part of the RBNZ's remit, the clear signs are the rate of growth is slowing, with predictions they would fall as much as 7 percent this year.
"Falling house values will dampen households' willingness to spend over the next couple of years," said Westpac acting chief economist Michael Gordon.
From QE to QT
Meanwhile, attention will also be on what the RBNZ has to say about the $55 billion worth of government bonds it bought between March 2019 and July last year.
That was the quantitative easing (QE) or money printing aimed at lowering interest rates and ensuring liquidity in the financial system.
The RBNZ has promised to outline its plan for reducing the load - now being called quantitative tightening - but has some obstacles.
It cannot sell them directly into the money market but only to the government's borrowing agency - the Debt Management Office (DMO).
"We expect the Bank to say that it intends to be pragmatic and flexible around QT, and be responsive to how the economic outlook and market functioning evolves, rather than pre-committing to, for example, getting the portfolio down to a specific size by a specific date," said ANZ chief economist Sharon Zollner.
Among the RBNZ's options are to hold the bonds until they mature, which would be a long-term affair, or set out a target and timetable for reducing the amount by selling to the DMO.
Zollner said she did not know what would be achieved by running down the bond portfolio ahead of its natural maturity, but if the RBNZ wanted to do so, it would have be managed so it did not cause the Treasury to have to issue new bonds for ones it was buying from the RBNZ.
Fisher Funds' McLeish said the DMO had about $37bn in cash, which would allow for a quicker sell down if the RBNZ wanted it.
