Fixed mortgage rates have leapt higher earlier than anticipated and the New Zealand dollar has accelerated more than expected, Stephens said. A stronger New Zealand dollar will dampen inflation pressures by lowering the cost of imported goods.
"The domestic economy has been building momentum, and we think it is that that is going to push the Reserve Bank into hiking," Stephens said. "In the presence of a slower housing market, it seems less likely that the Reserve Bank will be able to hike on that March timing. We did anticipate a higher New Zealand dollar but the New Zealand dollar has probably gone even further than thought."
The Reserve Bank said in September that it expected the trade-weighted index, the central bank's favoured measure of the currency, to average 74.7 in the final quarter of this year. The trade-weighted index was recently at 76.6.
The Reserve Bank is likely to "tread softly" as it will want to avoid a drop in longer term mortgage rates for people with large deposits which could add fuel to the housing market, Stephens said.
ANZ Bank still expects the first hike will come in March, and any change to its central view would likely see the first hike pushed out to June, New Zealand chief economist Cameron Bagrie said.
"This little economy, she has got a pretty good hum under the bonnet and she is still moving along pretty nicely. That suggests at some stage we are going to see interest moves up in 2014," Bagrie said.
"The tone will be a little bit more neutral compared to what they were saying in September but the underlying spirit is going to be the same - interest rates are going to move up but there is just a little bit more conjecture over the exact timing.
"The currency is an awful lot higher and the anecdotal evidence on the ground is that these loan-to-value ratio restrictions are biting," Bagrie said.
"They are probably working a little bit better than what the Reserve Bank probably initially estimated, but that is only anecdotal at this stage, we are not seeing it within the hard data but certainly on the ground the market has walked into a brick wall across the board."
"That suggests the Reserve Bank has probably got a little bit more time on its side," Bagrie said.
Bank of New Zealand expects the central bank to stick with its core message from September that it expects to raise interests the middle of next year.
"Rates will be going up next year but they still need to buy themselves some more time to work out in particular what the impact of these LVR restrictions will be in a sustainable fashion so while you are sitting there in no-man's-land waiting there is no reason why you would change your tone," said BNZ head of research Stephen Toplis, who expects rates to rise in March.
"If there is a risk to that view it is that it happens slightly later because these LVR restrictions are slightly more binding," Toplis said.
