The menacing state of global financial markets is expected to stay Reserve Bank governor Alan Bollard's hand when he reviews the official cash rate on Thursday.
In a Reuters' survey of 18 economic forecasters the consensus was only a one-in-five chance he will raise the OCR this week.
But 14 of the 18 expect a rate hike by the end of the year, 10 of them by 50 basis points. By the middle of next year economists expect the OCR to be a full percentage point higher at 3.5 per cent.
Money market pricing is more dovish, however. Credit Suisse's swaps-based indicator has the OCR only 40 basis points higher by this time next year.
At the last review in late July, Bollard said he saw little need for last March's post-earthquake "insurance cut" to the OCR, of 50 basis points to 2.5 per cent, to remain in place much longer.
But that was "provided current global financial risks recede and the economy continues to recover".
Those words were barely out of his mouth before global financial risks climbed dramatically, driven by fiscal concerns on both sides of the Atlantic.
Share prices, the cost of insuring against sovereign debt default and the interest rates at which banks lend to each other are all pointing to heightened stress.
Economic growth across the OECD was a scant 0.2 per cent in the June quarter.
Deutsche Bank estimates the probability of recession in the United States and Europe is now 50 per cent, according to its New Zealand chief economist, Darren Gibbs.
Some spillover into Asia is likely and there are significant concerns about the near-term growth outlook in Australia, he believes.
By contrast, the flow of domestic data suggests the bank would see its second condition for a rate hike - that the economy continues to recover - as met.
Gross domestic product data showed the economy both ended last year and began this year with more momentum than had been thought.
"Since then, employment data have confirmed the recovery in the labour market, outside Christchurch, was very strong over the first half of the year," ASB economist Christina Leung said. In addition, retail spending volumes were also robust over the June quarter and there was a lift in housing market activity, though Auckland house sales, which led that recovery, had more recently stopped increasing, suggesting that some of the momentum in the housing market might be fading, she said.
Export commodity prices, though they have weakened in recent months, remain at historically high levels.
The flipside of that is a dollar around 5 per cent higher than the Reserve Bank assumed in its last monetary policy statement in June.
Gibbs expects Thursday's statement to acknowledge that the high dollar is acting as a drag on the economy and doing some of the work that monetary policy would otherwise need to, as is a tightening fiscal stance.
On the key issue of inflation expectations, the Reserve Bank's own survey found a decline in expectations two years ahead, though at 2.86 per cent the level is still high, while the National Bank's monthly survey of business sentiment recorded a drop, to around average levels, in the proportion of firms expecting to raise their prices.
Westpac economist Michael Gordon said recent developments in Christchurch's recovery had ambiguous implications for the growth outlook.
"On the one hand, issues such as access to insurance are threatening to slow the pace of rebuilding," Gordon said. "On the other, the sharp [$4 billion] increase in the Earthquake Commission's estimate of the extent of quake damage implies an even larger than expected boost to activity once the rebuild does get under way."
