The Reserve Bank releases its monetary policy statement on Thursday and no-one expects an increase in the official cash rate of 2.5%, but there have been increasing calls for a cut as the European cash crisis continues.
BNZ senior economist Stephen Toplis believes it is unnecessary for the Reserve Bank to cut its OCR in the manner the market has been trying to price.
"Uncertainty remains the order of the day. For every indicator that suggests the New Zealand economy is set for a period of relatively strong growth, there is an equal and opposite indicator - or an equal and opposite interpretation of the very same data."
The BNZ economist still believed the economy was on a modest growth path. Potential growth was relatively low, which meant inflationary pressures would pick up at lower levels of growth and higher levels of unemployment that might have been the case previously, he said.
Over the medium term, there was a greater risk of interest rate hikes than cuts, albeit that it looked highly unlikely that the cash rate would push higher until early to mid-next year.
"Of course, if the world implodes, all bets are off. But for the time being, this should be seen as an increasing risk rather than a certainty."
The consensus view of commentators was for a hike rather than a cut, Mr Toplis said.
Some of the downward pressure on New Zealand interest rates stemmed from the Reserve Bank of Australia being in an easing mode. The RBA last week cut its OCR to 3.5% from 3.75%.
Many international investors did not differentiate effectively between New Zealand and Australia but it was important to note that the starting point cash rate in Australia was much higher than the New Zealand equivalent, he said.
It was not unusual for the New Zealand cash rate to be below Australia's for a sustained period of time and the Australian domestic economy seemed weaker than the New Zealand domestic economy.
"The unemployment rate in Australia may be lower than in New Zealand but this is solely because the Australian participation rate is so much lower."
Lending rates in New Zealand were falling aggressively without the help of the Reserve Bank, Mr Toplis said. There was no reason for the central bank to necessarily follow the RBA.
