Analysts are picking the timing of the Reserve Bank's expected official cash rate (OCR) cuts this year remain ‘‘finely balanced'', but with otherwise clear signals in the months ahead.
A move below the current 2.5% OCR would be a record low, prompting banks to further sharpen their pencils on mortgage lending rates, already at decades-lows.
The Reserve Bank's monetary policy statement (MPS) is due out on Thursday.
Westpac's senior economist Michael Gordon said the MPS was likely to signal a lower path for interest rates over the next year.
‘‘But the timing of rate cuts remains finely balanced,'' he said.
‘‘The New Zealand economy is ticking over nicely, but inflation pressures are very subdued, and a sustained return to the midpoint of the inflation target is looking increasingly unlikely under current policy settings,'' Mr Gordon said.
ASB senior economist Jane Turner said she expected the Reserve Bank to leave the OCR unchanged, but signal that a rate cut was ‘‘very likely''.‘‘We expect the Reserve Bank to adopt a stronger easing bias, signalling further rate cuts as imminent; albeit conditional on the data,'' she said.
She continued to expect two 25 basis point rate cuts, in June and August, although risks were skewed towards an earlier start, she said.
However, she said the Reserve Bank might prefer to wait until housing data for February and March was out, to be confident the Auckland housing market had cooled, before cutting rates further.
‘‘The Reserve Bank is very mindful that low interest rates have contributed to Auckland's overheated housing market over the past year, exacerbating financial stability risks,'' she said.
Mr Gordon also said the timing of interest rate cuts remained uncertain, and also picked two further OCR cuts in June and August.
‘‘While a case can be made for immediate action, we think the RBNZ's concerns about the housing market and its comfort with the rate of core inflation will stay its hand for now,'' Mr Gordon said.
‘‘While we don't expect the Reserve Bank to pull the trigger next week, we expect a strong signal to the market about the likelihood of lower interest rates,'' he said.
Interest rate markets were pricing in a 30% chance of a rate cut this week, and Mr Gordon said he would put the odds at least as high as that.
Mr Gordon said the OCR needed to be cut further this year, in order to return inflation; presently at 0.1%, to the Reserve Banks target range - between 1%-3% - and maintain it there over the medium term.
Developments since December had generally pointed in the direction of even less inflationary pressure than the Reserve Bank anticipated, Mr Gordon said.
