"That could be years away," Stephens said.
"By the time inflation returns to the middle of the bank's target band [2 per cent], the economy will be running out of steam, meaning that it will not have to raise rates at all."
What has pushed Bagrie over the line to calling a rate cut is ANZ's monthly inflation gauge, which is an indicator of where non-tradeables or domestic inflation is heading. It is now pointing sideways.
The underlying measure, which excludes government charges and housing-related items like construction costs and rents, has risen just 0.1 per cent in the three months to April.
Combined with a high New Zealand dollar, which depresses tradeables prices, a squeeze on dairy incomes - ANZ has revised down its forecast for next season's payout to between $5 and $5.25 a kilogram of milk solids - and the expectation of regulatory moves by the Reserve Bank to curb the housing market, the weak inflation gauge has convinced Bagrie that cutting the OCR is low-cost insurance against emerging economic risks.
"We see little point waiting until the second half of the year to exercise this optionality," he said.
Meanwhile, Westpac's latest quarterly forecasts have strong growth in private consumption this year and next year - 4.4 and 3.7 per cent respectively - underpinning gross domestic product growth of 3 per cent in both years.
New Zealand had benefited from a "gigantic global disinflationary impulse", reinforced by a strong exchange rate, so that even though nominal wage rises had been weak, in real terms wage growth in the year to March 2015 was the highest for a decade, Stephens said.
The gains in household wealth from rising house prices, low mortgage rates and a migration-fuelled surge in population were all adding to the strength in household spending.
"Inflation will certainly pop higher when this year's fall in petrol prices and ACC levy cuts drop out of annual calculations," he said.
"While we do expect inflation expectations to remain soft, the strong economy will increasingly boost non-tradeables inflation. In addition, the outlook is for a flat to falling trade-weighted exchange rate, which will boost tradeables inflation.
"This combination of conditions will push overall inflation to 2.4 per cent by 2017. Beyond that point, however, we expect economic growth to slow as the Canterbury rebuild winds down."
The strong economy would run out of steam before inflation became a noxious problem.
"True, inflation is expected to rise into the upper half of the Reserve Bank's target band, but only briefly, and only at a time when economic growth is cooling. No forward-looking central bank would hike in such an environment."
Of the big four banks only the BNZ remains outside the camp calling OCR cuts.
"It's not as though the bulk of New Zealand's economic news is going soft. Far from it," said BNZ economist Craig Ebert.
The Treasury yesterday reported a tax take nine months through the current fiscal year 8.3 per cent up on the same period last year, and a deficit less than a third of what it had forecast.
Kiwi dollar at lowest level since March
The New Zealand dollar sank to its lowest level since March after retail spending figures added to speculation that the Reserve Bank will cut interest rates this year to lift demand and ensure inflation, currently weak, is consistent with its target.
The kiwi dropped to US73.85c as at 5pm in Wellington, and earlier fell as low as US73.74c, the lowest since March 19, from US74.86c at the New York close on Friday. The trade-weighted index fell to 76.49 from 77.08 on Friday.
Kiwis' spending on credit and debit cards fell 0.8 per cent in April, based on the core spending measure, snapping nine consecutive monthly gains. The data comes after labour market figures last week showed wage inflation slowed in the first quarter.
On April 30, the Reserve Bank said it may have to cut the official cash rate from 3.5 per cent should demand and inflationary pressures track lower than would be consistent with its inflation target.
"The market is pricing in even more chance of Reserve Bank rate cuts," said Imre Speizer, a strategist at Westpac Banking Corp. "Last week's wage data was pretty weak and then today we had some weak retail sales data. Conditions under which the Reserve Bank said they could cut are slowly being ticked off."
The Reserve Bank's quarterly monetary policy statement and OCR review is scheduled for June 11.
The kiwi may trade between US72c and US77c this week, according to a BusinessDesk survey of 12 currency advisers. Nine expect the kiwi to fall and three say it will probably remain largely unchanged. None expect it to increase.
The dollar fell to A93.52c from A94.19c on Friday. The kiwi declined to 47.88 pence from 48.04p. It fell to 66.24c from 66.45c on Friday and tumbled to 88.54 from 89.36.
- additional reporting BusinessDesk
