KEY POINTS:
Borrowers will be in for some more belt-tightening next year following the Reserve Bank's move last week to stay the course with its high interest rate policy.
Economists say an official rate cut is still some way off - the consensus being sometime late next year - but
that could quickly change if the US economy starts to tank.
As it stands, borrowers could be in for increases of 0.7 to 1.5 percentage points next year.
The Reserve Bank's decision to keep its official cash rate at 8.25 per cent is in contrast with recent decisions made by many of its northern hemisphere counterparts.
The Bank of England cut interest rates for the first time in more than two years on Thurs-day in order to shore up the economy in the face of a global credit crunch.
The quarter-point cut to 5.5 per cent, which reversed July's hike, was needed, the central bank said, because economic growth was slowing and the state of financial markets was starting to get worse.
In the United States, where the trouble began in the sub-prime lending market, the Federal Reserve has already cut rates by 75 basis points. It looks likely to cut again this week as the turmoil continues.
The Bank of Canada cited expectations of more global financial market difficulties when it reduced its overnight lending rate 25 basis points to 4.25 per cent last week.
The Reserve Bank of Australia kept its rate at 6.75 per cent on Wednesday but highlighted the perils presented by the global environment. Overall, its stance was softer than expected.
In contrast, the Reserve Bank of New Zealand's statement had a hawkish tone.
"Inflationary pressures have increased, and interest rates are now likely to remain around current levels for longer than previously thought," Reserve Bank governor Alan Bollard said.
UBS New Zealand economist Robin Clements says other central banks are clearly becoming more concerned about higher financial costs, financial instability and risk aversion from the credit market turmoil spilling over into pessimism, lower growth and lower lending.
Clements says the Reserve Bank feels it needs to batten down the hatches, not only because of the higher food and fuel prices, but also because of the expected stimulatory effects of higher dairy returns and the prospect of tax cuts arising from next year's election.
"It does seem to be an interesting contrast, especially because these other central banks have been making their decisions in recent weeks, so they are facing the same information set, and yet the Reserve Bank seems to be that much more circumspect about it all," he says.
ASB bank chief economist Nick Tuffley says the differing positions of central banks is a reflection of their economies being at different stages. "Also the crisis is affecting countries in different ways so, arguably, out of all of those, we would be the least affected so far."