Senior analyst David Lewis said financial markets were forecasting an increase in the cash rate in March next year.
''We consider this may be too late. In the absence of an unexpected further move down in our currency, we see a high chance the first OCR hike comes at the Reserve Bank's January meeting - and quite possibly as early as December.''
The Reserve Bank on Thursday will release its July OCR statement with nothing much expected to change the central bank's outlook relative to the June Monetary Policy Statement. Craigs Investment Partners broker Chris Timms said no-one was expecting a rise in the OCR.
''With inflation very low, the currency weakening and house prices stagnant everywhere but Auckland and Christchurch, the Reserve Bank will be far happier to deploy macroprudential tools selectively than to use interest rates to curb housing enthusiasm in Auckland.''
Looking at the future path of the cash rate, market and economist expectations were beginning to diverge, with some suggesting the central bank would have to move quicker than Reserve Bank forecasts indicated, he said.
In Australia, markets still saw a chance of an interest rate cut on August 6 from the Reserve Bank of Australia, with pricing suggesting a 64% likelihood of a rate cut to 2.5%, the same as in New Zealand.
Australian inflation figures for the second quarter were due tomorrow,
Mr Timms said. Last quarter, the headline inflation rate was 0.4% quarter-to-quarter and 2.5% annually, compared with 0.7% annually in New Zealand.
Markets expected Australian inflation to soften further, but large deviations either side of expectations might see moves in interest expectations, the Australian dollar and interest rate sensitive stocks on the equity markets, he said.
Mr Lewis said New Zealand was enjoying increasing economic momentum, underpinned by a strongly performing housing sector boosting growth in Auckland and Christchurch.
According to Reserve Bank forecasts, that would help GDP (national economic growth) accelerate in the second half of the year to a 3% annualised rate, up from below 2% in the first half.
Domestic consumption next year was likely to be even stronger, with 3.5% private consumption growth forecast for 2014, as well as a ''very strong'' 10.6% increase in total investment, he said.
Milford would watch for any impact of the Reserve Bank's loan-to-value ratio lending restrictions.
Housing finance data suggested banks might be pulling back from more aggressive mortgage lending.
But ''once momentum in the housing market builds, it can be difficult to stop'', Mr Lewis said.
