Many expect the cash rate to continue rising for most of the year, with the ASB predicting regular increases until it peaks at 5% later this year.
ASB Economist Jane Turner said Reserve Bank governor Alan Bollard was moving to address pending inflationary concerns and the risk there was an expectation prices would rise.
Dr Bollard would also move to ease monetary stimulus.
Ms Turner said headline inflation was set to peak at over 5% due to a raft of Government-related price spikes which, she said, the Reserve Bank had underestimated.
"We are not talking of the Reserve Bank slowing growth, they're just trying to prevent inflationary pressure getting out of hand."
In the next year, the economy will experience inflationary pressures from increases in the goods and services tax, higher energy costs from the emissions trading scheme, above average increases in ACC levies and an increase in tobacco excise which she said would combine to push inflation above 5% by the middle of next year.
Inflation in the second quarter of this year was softer than expected at 0.3%, but Ms Turner said while this was close to the Reserve Bank's expectations in the short term, the inflation threat was further out.
Economic data had been softer since June's monetary policy statement, but she said that had not been a surprise.
Terms of trade point to a relatively strong outlook for export prices, but there was some uncertainty about the Chinese economy's rate of growth.
Net migration for New Zealand was weaker than some forecast, reducing demand for housing.
Business sentiment reflected in the NZIER Quarterly Survey of Business Opinion was also close to the ASB's expectations, with the survey showing business growth of between 3.5% and 4% a year.
Ms Turner said the Reserve Bank might have been overly optimistic on economic forecasts, with the economy growing 0.6% in the first quarter, down slightly on a forecast 0.8%.
Craigs Investment Partners also forecasts a 25-point rise but said the Reserve Bank's outlook would be of more interest.
The broker believed the bank would say the recovery remained intact, but near-term growth and inflation pressures could be weaker than projected.
The Reserve Bank could pause its tightening in the fourth quarter due to lower commodity prices and tourist numbers pushing inflation to peak just under 5%.
Craigs forecasts the economy to grow 2.8% this year and 3% next, with annual inflation of 2.5% this year and 3.5% next.
