The Reserve Bank will released its official cash rate review on Thursday and last week's official inflation figure of 1% for the year ending June is likely to figure highly in the thinking of governor Alan Bollard.
Mr Stephens is expecting a dovish review with no hint of OCR reductions.
"We expect the Reserve Bank to leave the OCR unchanged at 2.5% but will reiterate its intention to leave the OCR at this low level for some time."
However, beneath the mundane headline, there had been interesting changes in the monetary policy landscape, he said. The Reserve Bank was likely to interpret the balance of recent developments as another reason to keep the OCR lower for longer.
"The consequence of low-for-longer interest rates will be more buoyancy in the housing market.
"New Zealand could start looking a lot like Canada and Norway where housing markets are frothy but the central banks are keeping interest rates low due to subdued consumer price inflation and high exchange rates."
Canada recently resorted to unconventional tools to try to cool the housing markets, including maximum amortisation periods for mortgages, loan-to-value limits on equity draw downs and requirements for borrowers to demonstrate that housing costs were no more than 39% of income, he said.
It was possible that New Zealand could next year invoke similar unconventional tightening measures to cool an overheating housing market.
"We would not rule that out," Mr Stephens said.
