Westpac's economics team has become the second one from a major bank so far this year to push out its expectation for an increase to the Official Cash Rate (OCR).
Westpac chief economist Dominick Stephens says in his weekly video today he now expects the Reserve Bank to start increasing the OCR from December this year. As recently as December 6 Westpac's economists were predicting a hike in September.
"We've changed our forecasts and we now expect the OCR will start rising only from December this year," Stephens says.
Westpac's fresh forecast comes ahead of next Thursday's OCR review from the Reserve Bank with Governor Graeme Wheeler widely expected to leave it at its record low of 2.5%. It also comes after ASB's economists pushed out their expectation for a first OCR increase to March 2014 from December 2013 on January 18.
In his video Stephens predicts a "slightly dovish" tone from the Reserve Bank, indicating the OCR can remain lower for longer.
"That said we don't think the Reserve Bank theme will be too extreme or involve any radical changes in stance and it certainly won't suggest that the next move in the OCR might be down. The reason for that is that the Canterbury rebuild is manifestly gaining a real head of steam at the moment and the housing market is becoming quite frothy," says Stephens.
"Low interest rates, of course, would just stimulate further causing a headache for the Reserve Bank down the line."
He says pushing out Westpac's expectation for the first OCR increase comes after Statistics New Zealand figures on January 18 showed inflation was just 0.9% last year, with the strong New Zealand dollar helping keep the price of imports down.
"I'd suggest that perhaps online retailing is helping to keep tradable goods and service prices down," Stephens adds.
Meanwhile, strong interest from international financial market participants suggests the New Zealand dollar could go higher still.
"With inflation already low, the exchange rate set to go higher, which will keep inflation down for some time, this all suggests interest rates can stay low for longer than previous thought."
Meanwhile, on January 18 ASB senior economist Jane Turner pointed out the 0.2% contraction in December quarter inflation was a weaker result than the market, ASB, and the Reserve Bank had expected. And a 0.9% annual level is below the Reserve Bank's medium-term inflation target band of 1% to 3%.
Turner also hedged ASB's push back of its expectation for an OCR increase by saying: "One risk in the Reserve Bank waiting until then is the evident heating up in parts of the housing market and acceleration in credit growth. Both of these factors are likely to cause increasing concern for the Reserve Bank, and earlier OCR increases are still possible. There is the small, but growing, possibility the Reserve Bank turns to its macro-prudential toolkit first if expected inflation pressures remain muted yet housing/credit growth strengthen in such a low interest rate environment."
BNZ's economists expect a 25 basis points hike to the OCR in December, with the OCR rising to 4.25% by the end of 2014. ANZ's economists expect the OCR to be on hold until 2014.