By David Hargreaves
ANZ's economists are raising the possibility that the Reserve Bank might start hiking interest rates as soon as the second half of next year.
The Reserve Bank itself is not currently forecasting any rate rises in the foreseeable future.
Any rate rises next year could potentially have a big dampening impact on the housing market, which has been fuelled in large part by the low and falling interest rates.
"We forecast 50bps of OCR hikes over 2018, lifting the cash rate to 2.25%.
"However, we currently see the risk skewed towards earlier action and would not completely rule out RBNZ hikes in the second half of 2017."
The RBNZ dropped rates, with a quarter of a percentage point cut to the Official Cash Rate, as recently as last month - taking the OCR to a historic low of 1.75%.
When reducing the rates on November 10 the RBNZ didn't rule out further rate reductions, with the forward projections contained in the Monetary Policy Statement leaving the door slightly ajar to a further rate reduction.
The RBNZ's projections saw no rate rises before the end of the current forecast period, which runs till December 2019.
However, in a speech two weeks ago, RBNZ Governor Graeme Wheeler appeared to subtly move the central bank's position.
He said the trend of downward pressure on our interest rate structure, asset price inflation, and upward pressure on the New Zealand dollar "may finally be turning", though stopped short of making any tweaks to the RBNZ's forward projections. The central bank's next Monetary Policy Statement and detailed forecast will now not be released till February 9.
The ANZ economists say that "price tension" is finally emerging and the inflation cycle is turning upwards.
"Base effects from a stabilisation in oil prices alone are expected to see headline inflation return to the RBNZ’s target band [of 1%-3% inflation] in [the fourth quarter of this year] for the first time in over two years, they said.
Inflation pressures are building and are expected to continue to build as the economy increasingly "butts up against capacity headwinds", they said.
"Those pressures are already apparent in the construction sector (and construction costs), but they are forecast to broaden with the economy continuing to expand at an above-trend pace and wage inflation lifting."
The economists said that after returning to the target band in the final quarter of this year, headline inflation is forecast to reach 2% by early 2018. 'Non-tradable' inflation is forecast to have risen above 3% over the same period.
HSBC economists also see rate rises on the horizon.
They expect 50bp of rate hikes in 2018. and say that their "recent shift in policy rate expectations" for both the US Federal Reserve and Reserve Bank of Australia "mean that the RBNZ should be able to lift its policy rate without unwanted upward pressure on the [New Zealand dollar]".