A robust decision-making process and clear communication were essential for effective monetary policy, Reserve Bank governor Graeme Wheeler said.
The bank tried to provide an accurate assessment of the implications of the challenges provided by the ''massive adjustments'' taking place in the government, corporate and financial-sector balance sheets, as well as those of households, he said.
A more open communications policy will be helpful this week as the Reserve Bank releases its monetary policy statement, which may need to address the effects of the drought on the New Zealand economy.
The central bank is expected on Thursday to leave its official cash rate at 2.5%, an increasing number of economists predicting it will stay at the record low until March next year.
Westpac is taking a different view, the bank harbouring concerns the Reserve Bank's fears around housing are about to be realised.
Westpac chief economist Dominick Stephens said the Reserve Bank's last two commentaries on monetary policy had given a consistent message.
The global and local economies were improving. The Canterbury rebuilding was set to add an extra boost to the New Zealand growth, although that would be partially offset by the dampening effects of Government austerity and the high exchange rate. Overall, the Reserve Bank expected inflation to rise from the current low level of below 1% to the 2% target midpoint.
The general themes of the monetary policy statement were likely to be unchanged from the two previous missives, although one or two nuances might be highlighted, Mr Stephens said.
The bank would probably mention that local economic activity had been stronger than anticipated in recent months. That would be countered by observations that inflation had been lower than expected and the trade-weighted exchange rate had risen 4% since December.
The recently declared drought would probably be described as an important risk rather than being included in the bank's central economic projections at this stage, Mr Stephens said.
''Our view is that the Reserve Bank's fears around housing will be realised. Given the current state of the market, house prices could easily rise 9% this year on a nationwide basis. That would be sufficient to provoke earlier OCR hikes. We expect the first hike to come in December 2013 and the follow-up pace of hikes over 2014 to be steeper than markets currently anticipate,'' Mr Stephens said.
ASB chief economist Nick Tuffley said, while the overall economic outlook had not changed significantly, the tension within the forecasts had increased.
The trade-off between subdued economic growth and weak inflation pressure and the increase in housing market pressures had become more extreme.
The elevated value of the dollar was creating significant problems for the export outlook and Mr Wheeler had commented a stronger dollar implied a lower OCR for longer, Mr Tuffley said.
''Low interest rates will continue to stimulate housing demand. In response, there is a growing chance the Reserve Bank uses macro-prudential tools later this year.''
Research suggested the impacts of those tools were very modest and the OCR remained the best tool if the housing market risks to the economic outlook became too great, he said.
