ASB has pushed out by three months its expectation of when the Reserve Bank will hike interest rates again

ASB is now picking March for the next hike in interest rates by the Reserve Bank, after earlier predicting a December rise in the Official Cash Rate. 

"We are pushing out until March 2015 our view of when the RBNZ will recommence OCR increases," ASB's economists said in the bank's latest Economic Update.

"The interaction between dairy prices, the NZ dollar and interest rates suggest that something will have to give.

"In the absence of a substantial rebound in global dairy prices or a substantial fall in the NZ dollar, interest rates will have to remain stimulatory for longer than we had expected.

"A longer pause in the tightening cycle would buffer the NZ economy from lower dairy prices and continued strength in the NZ dollar," the bank said.

ASB said it expects the Reserve Bank to increase the OCR by 25 basis points at the release of each Monetary Policy Statement in March, June, September and December next year.

"We continue to expect the OCR to peak at 4.5%, but now expect this peak will not be reached until the end of 2015," it said.

However ASB said there was still a risk that the OCR could be raised earlier than March, if there was a sharp drop in the dollar or a strong rebound in dairy prices, or if there was stronger than expected net migration or higher than expected wage growth. 

So far this year the Reserve Bank has increased the OCR four times by a combined 100 basis points to 3.50%. However, at its most recent review on July 24, when the OCR was increased 25 basis points, the Reserve Bank signalled a "period of assessment." The upcoming dates when the OCR will be reviewed are September 11, October 30, December 11, January 29 and March 12.