Financial markets see almost no chance Reserve Bank governor Graeme Wheeler will move the official cash rate from its all-time low of 2.5 per cent when he reviews it on Thursday, so the focus will be on whether the brief accompanying statement gives any reason to question their expectation that it will be the March quarter next year before he starts to raise interest rates.
He is caught between an overvalued currency and overvalued houses.
The high dollar has kept inflation below the 1 per cent bottom of the bank's target band for a year now and all else being equal would make a case for a cut to the OCR.
But "all else" includes an overheated housing market in Auckland where by one measure, the Real Estate Institute's stratified index, house prices rose 20 per cent in the past year.
Crucially, that increase is from levels already high relative to incomes and rents, by both historical and international standards, and of concern to the Reserve Bank as the guardian of financial stability as well as price stability.
Household debt levels are high relative to incomes and now growing faster than incomes.
Wheeler has indicated he is reluctant to raise the OCR, given the impact wider interest rate differentials could have on the exchange rate and the trade-exposed sector.
The exchange rate has fallen since the last OCR review on June 13 on a trade-weighted basis, though that masks a A2c rise against the Australian dollar partially offsetting a decline against the US dollar.
On a trade-weighted basis it is now about 3 per cent lower than the average the bank's June forecasts assumed for the current quarter.
But the exchange rate is being swung around by yo-yoing expectations in global financial markets about when the US Federal Reserve will start to taper off its quantitative easing.
The latest word from Fed chairman Ben Bernanke is that it expects to moderate the pace of bond purchases later this year and end them about the middle of next year, but this remains subject to the flow of US economic data.
So while the New Zealand dollar's trade-weighted index has fallen to levels the Reserve Bank did not expect to see before 2015, economists doubt Wheeler will see that decline as secure enough to moderate his reluctance to raise the OCR for a while yet, and will impose curbs on high loan-to-value mortgage lending first.
A Reuters poll of 16 banks and other forecasters found a strong consensus that the bank will start to tighten in the March quarter next year. Swaps market pricing implies interest rates will rise 2 percentage points by late 2016.
ASB chief economist Nick Tuffley said that while a stronger US dollar was the dominant influence on the exchange rate, interest rate differentials, a continued easing bias among most major central banks and firm export commodity prices meant the New Zealand dollar was likely to remain relatively high over the coming years. Since the last OCR review, March quarter gross domestic product growth, at 0.3 per cent, came in below the bank's forecast of 0.5 per cent.
But near-term forecasting is complicated by the summer drought and the result is not expected to challenge the Reserve Bank's view that the economy's spare capacity will be taken up over the year ahead.
Meanwhile, June saw a net inflow of 2330 migrants, a level exceeded only once in the last nine years and which boosted the annual gains to just under 8000, compared with a net loss of 3200 people the year before.
While migration gains boost both the demand and supply sides of the economy, the effect on demand is generally faster and economists expect it to place more pressure on supply-constrained housing markets in Auckland and Christchurch.