The ''sheer scale'' of the massive plunge in oil prices to five-year lows could dampen New Zealand inflation to the point the Reserve Bank does not touch interest rates until 2016.
The diminishing dairy payout, cheap petrol and expensive housing all feature in Westpac chief economist Dominick Stephens' low-inflation forecast.
The Reserve Bank releases its Monetary Policy Statement at 9am today. Oil has plunged below $US70 ($NZ91) a barrel in recent weeks as global demand wanes and production remains static.
Mr Stephens is the first economist to raise the prospect of the Reserve Bank holding the interest-driving official cash rate (OCR) beyond the analysts' consensus of late 2015, into 2016.
''The sheer scale of the drop in oil prices will have a profound effect on inflation and the economy,'' Mr Stephens said yesterday.
Until the oil plunge, Mr Stephens had been forecasting New Zealand's inflation at 1.8% in September 2015, but that had now been cut to just 0.9% - below the Reserve Bank's 1%-3% range, he said.
''We now expect inflation to drop below 1% and stay there until December 2015. We expect no change in the OCR until 2016,'' he said.
The Reserve Bank was now more likely to to tighten its macroprudential policy - which is mainly governed by OCR moves - than loosen it during the year ahead, as had been expected, he said.
He said the lower oil price would reduce New Zealand's inflation directly through petrol prices, and indirectly for many businesses, from areas such as the transport sector. Petrol and diesel prices per litre have eased about 20c during the past two months.
''We now expect the OCR to remain on hold at 3.5% for the whole of 2015,'' Mr Stephens said. He forecast four OCR increases during 2016, and one in 2017, to take the OCR ''to a stunted peak of just 4.75%''.
While New Zealand had ''strong economic growth'' and a ''resurgent housing market'' which could prompt inflation in the longer term, the Reserve Bank was not expected to adjust the OCR ''to every bump and dip'' in inflation, Mr Stephens said.
He also noted the lifting of the now 14-month-old Reserve Bank's loan-to-value ratio (LVR) restrictions on banks' lending was ''now very distant indeed''.
While rising house prices, cheap petrol and low interest rates would boost consumer spending, a ''two-speed'' economy would emerge, as some rural regions struggled under the decreased dairy payout, while urban areas benefited from strong consumer demand, he said.
