Reserve Bank Governor Alan Bollard has been steadfast in predicting a mid-year hike in the official cash rate, but economists, traders and investors are starting to think there'll be no action till later in the year.
Why, some ask, would Bollard rush to raise interest rates when the recovery is so fragile, unemployment remains high, the housing market stays weak and the export sector shows signs of recovery that would be choked off if the kiwi dollar strengthened?
The latest surveys of business sentiment tell the same story. While most expect the economy to start improving, it's not happening either as quickly or as early as in a "normal" recovery.
That's because the economy is still digesting the impact of the global financial crisis, rebalancing toward tradables and away from debt fuelled consumer spending. It's all just taking more time. The stock market has roared back from its lows of early 2009 but the recovery it heralded has proven shallow and just a little unconvincing. Expectations and reality have some way to go before they match up, especially for small and medium-sized firms, which continue to do it hard, according to the latest New Zealand Institute of Economic Research quarterly survey of business opinion.
When the first rate hike since July 2007 comes, it will have powerful effect, given the shift in mortgage lending toward short-term and floating rates, and away from long-term fixed. If Bollard holds off, borrowers have a longer window to adjust their debt, but investors will look offshore more.
In the meantime, savers' loss is exporters gain, as the conditions look right for a sustained dive in the kiwi dollar against the Aussie.
Meanwhile, the housing market remains sluggish, with increased listings and lacklustre demand. Unemployment at 7.3% is at an 11-year high and any surplus household cash is more likely to pay down debt than buying a new 42-inch flat-screen television. The average household will remain a more financially conservative entity than it was before the global crisis, and the unexpected fall in retail sales in February is proof.
In this environment, wages will rise slowly over the next 12-15 months, so there are few inflationary pressures on the home front.
High oil prices have nudged up the price of petrol but like with many costs, businesses just don't have the pricing power to pass that on to customers.
Across the Ditch, the Reserve Bank of Australia, one of the first central banks to resume raising interest rates last year as the global slump abated, has now signaled monetary policy is close to neutral, with its cash rate at 4.25%. That suggests there is room for New Zealand to narrow the rates gap with its trans-Tasman neighbour.
One thing's for certain, New Zealand interest rates are set to rise this year, but probably later and more slowly than might have been expected at the beginning of the year. Today's official cash rate of 2.5%, a record low for the OCR, is well below neutral.