Market expectations are for the Reserve Bank to hold its official cash rate steady this year or to increase it, but a contrary view put forward by Australia's Capital Economics suggests rates may actually fall, with a cooling real estate market acting as a catalyst.
Forecasts from the big four banks range from two hikes this year to none all until late 2019.
Interest rate market pricing suggests that there is an 85 per cent chance of an official cash rate hike by the end of 2018, with further increases expected beyond that.
Paul Dales, Capital's economist for Australia and New Zealand, said expectations were surfacing of a rate hikes this year from both the Reserve Bank of NZ and the Reserve Bank of Australia (RBA). "We disagree," Dales wrote in an economic update.
Capital's forecast for gross domestic product in New Zealand is that it will again grow by 3.0 per cent this year, matching the consensus forecast.
"But the risks are on the downside and the easing to 2.5 per cent we expect in 2019 may happen sooner," he said.
The government's fiscal plans will support growth, but tighter rules on migration and housing investment will weigh on consumption and housing activity, he said.
"Either way, with core inflation set to stay in the bottom half of the [Reserve Bank's] 1-3 per cent target, we expect the Reserve Bank will keep rates at 1.75 per cent rather than raise them to 2.00 per cent, as implied by the financial markets and the consensus," he said.
"The biggest downside risk facing the New Zealand and Australian economies is their fragile housing markets," Dales said.
"It is hard to think of reasons why the housing markets would strengthen, but upward pressure on mortgage rates from overseas, weaker migration and tighter lending conditions or stricter tax rules could mean they are weaker than we expect," he said.
"If the recent softening turns into a slump, then the RBA and the Reserve Bank of NZ may have to cut interest rates."
Latest data from Quotable Value showed year-on-year, the volume of New Zealand houses sold was down every month in 2017, with numbers down by more than 20 per cent in February and October. Despite the slow-down in sales, property values continued to rise, although at a slower rate than in previous years.
The Bank of NZ's economics team has pencilled in two hikes by the Reserve Bank in August and November, followed by four more 2019.
ANZ expects one rate hike in November, then two more in 2019.
At the dovish end of the scale, ASB does not see a change this year and is predicting two hikes in 2019, while Westpac does not expect to see a rate hike until late 2019.
The Reserve Bank's at the last review on November 9 said that monetary policy "will remain accommodative for a considerable period".
The Reserve Bank's next review of the OCR is due on February 8.
Dales said GDP growth in Australia would not live up to the consensus forecast of 2.9 per cent and the RBA's forecast of 3.0 per cent.
"The good news is that the outlook for [Australian] business investment is better than since the mining boom ended in 2013 and the public infrastructure spending pipeline is full. The bad news is that dwellings investment will fall further and low income growth, high debt and a weaker housing market will conspire to keep consumption growth weak," he said.
"GDP growth will still rise from around 2.2 per cent last year to about 2.5 per cent this year, but that would be the eighth year in the past ten that growth has fallen short of the economy's potential rate of 2.75-3.0 per cent," he said.
Underlying inflation in Australia would spend a third year below the 2-3 per cent target and official interest rates there would stay at 1.5 per cent for the second year in a row, he said.