In the month since Reserve Bank governor Alan Bollard raised the official cash rate to 3 per cent, the financial market has changed its collective mind about whether he will hike again around the middle of next month.
The probability of another OCR rise on September 16, as reflected in swaps market pricing, has fallen from 75 per cent to 25 per cent over the past four weeks, and the market has gone from expecting three or four OCR hikes over the year ahead to two at the most.
So what has changed?
The June-quarter labour market report was a lot worse than expected, the unemployment rate rebounding from 6 to 6.8 per cent and employment shrinking 0.3 per cent, when the market had expected a 0.4 per cent rise.
The BNZ-Business New Zealand performance of manufacturing index for July slipped into contraction territory for the first time in nearly a year.
The ANZ commodity price index fell 2.8 per cent last month, in New Zealand dollar terms, led by dairy prices. The housing market remains torpid and credit growth feeble.
On the international front concerns about the growth outlook, and the possibility of a double-dip recession in the United States in particular, have seen global interest rates slide.
Against this background, the Reserve Bank's language has softened. In a speech on August 19 Bollard described the recovery as "certainly not a fast or robust one". In July it had been "respectable".
"You never want to read too much into such word changes, but clearly the Reserve Bank has given itself wiggle room to move on the growth front and hence pause in September," said ANZ chief economist Cameron Bagrie.
But Bagrie said the Reserve Bank's flexibility to support growth was always subject to its inflation mandate. The ANZ was reassuring, its expectations survey for inflation two years ahead falling since last quarter, from 2.8 to 2.56 per cent.
Bank of New Zealand economists now also expect Bollard to pause in September and October's OCR review as well. Not that they think he should.
"If the economy pushes along at near-potential rates of growth, the cash rate must head back towards neutral. Neutral is not 3 per cent," said BNZ head of research Stephen Topliss.
Not all the data have been weak, he said. Export commodity prices have softened but remain high - Fonterra has confirmed it's on track to its forecast payout of $6.90 to $7.10 a kilogram of milksolids.
June-quarter retail sales were more buoyant than expected and net immigration, which had dwindled to almost zero, rebounded strongly last month.
Bagrie said that while a weaker US economy was not good news, lower global interest rates had seen two-year mortgage rates cut.By Brian Fallow Email Brian