The Reserve Bank (RBNZ) is expected to leave the official cash rate (OCR) unchanged at 5.5 percent on Wednesday for a fourth consecutive meeting, and douse hopes that cuts will occur anytime soon.
The central bank called a halt to its aggressive rate rise cycle in May, after 12 consecutive rises lifted the OCR from 0.25 percent to combat soaring inflation, that peaked at 7.3 percent in the middle of 2022.
But core domestic price rises have meant the easing in inflation has been slow, and resulted in the RBNZ stressing that interest rates need to stay higher for longer.
Westpac chief economist Kelly Eckhold said the central bank would want to be comfortable that inflation is close to returning to the 1-3 percent target zone before thinking of relaxing policy.
"That sticky core inflation hasn't really moved for most of the last year and it really does need to move lower if the Reserve Bank is to have confidence that inflation is going to settle back in that target range."
No rate cuts soon
Since the last RBNZ review inflation has slowed to 5.6 percent, the labour market has turned softer as a surge of migrants filled empty jobs, and consumer spending has slowed with household budgets squeezed by high interest rates.
Eckhold said there was still an outside risk the RBNZ might need to raise the OCR again next year, but at the very least he doubted there was much prospect of rate cuts much before 2025.
Financial markets have priced in at least two rate cuts for next year starting as early as May, but ASB chief economist Nick Tuffley said the Reserve Bank would not want markets getting too ahead of themselves.
"The main messages from the RBNZ will be similar: interest rates are doing the required job but they will need to remain restrictive for some time.
"There will be enough to keep markets pricing in little chance of a further OCR increase, yet little to encourage markets to bring further forward the pricing of the eventual easing cycle. A Goldilocks statement - not too hot but not too cold."
The RBNZ published a full range of economic and financial forecasts with the statement as well as an indicative track of where the OCR might go.
Eckhold said another reason for the RBNZ to stay on the sidelines was to assess the scope of the new government's spending plans, and whether the mooted cuts in public spending would take more stimulus out of the economy which would put some downward pressure on inflation.
Meanwhile, RBNZ Governor Adrian Orr was expected to be pressed on the new government's plans to remove maintaining employment from the RBNZ's policy priorities, and his relationship with new Finance Minister Nicola Willis, with whom he has clashed several times in select committee hearings over the RBNZ's actions during the pandemic and its fight against inflation.