A rise in the official cash rate in March is nearly certain - barring some meltdown in the global economy - after the Reserve Bank left it on hold at 2.5 per cent yesterday but its accompanying statement displayed all the talons, beak and plumage of a hawk.

"There is a need to return interest rates to more normal levels," governor Graeme Wheeler said. "The bank expects to start this adjustment soon."

It expects economic growth to continue at a rate of around 3.5 per cent over the coming year, an upward revision from around 3 per cent in its December forecasts, propelled by "very high" export commodity prices and a "rapid" rise in net immigration, on top of increasing construction activity in Canterbury and Auckland.

While a strong dollar has helped moderate inflation, the bank reiterated its view that the exchange rate is higher than is sustainable in the long run.


It expects inflation pressure to increase over the next two years, citing surveyed pricing intentions by firms and rising construction costs.

It is "committed" to increasing the OCR - a semantic upgrade from plain "will" six weeks ago - as needed to keep future average inflation near the 2 per cent mid-point of its target band.

ANZ chief economist Cameron Bagrie expects 75 basis points of OCR rises over the first half of the year followed by a pause, with the OCR hitting 4.5 per cent (his interpretation of a "more normal" level) by 2016.

ASB chief economist Nick Tuffley expects, barring an external shock, rises of 25 basis points in March, June and December and a peak of 4 per cent late next year.

Wheeler said the scale and speed of the rise in the OCR would depend on future economic indicators.

Bank of New Zealand economist Craig Ebert said it would not be long before the Reserve Bank got a hurry-up from the data.

"Even 3.5 per cent [economic growth in 2014] looks light to us. We project something closer to 4 per cent."

Ebert is critical of the view that the public have got the message about rising interest rates already because the financial markets expect 200 basis points of OCR rises and longer-term mortgage rates have already risen as wholesale rates have gone up.


"That's all very well but the fact of the matter is most people are on very short term debt. It is not just households. It is businesses and farms. So it is not clear that the message has been getting through. If it had been, people would be fixing far more and for far longer than they have been," he said.

"So in some respects it won't actually have an effect until [the Reserve Bank] actually does something. That's the bit we are waiting for."

On the international front Wheeler cited the improved growth outlook for the global economy but added a caveat about uncertainty surrounding the timing of the withdrawal of exceptional monetary stimulus in the major economies and the effects that would have on emerging markets.

Deutsche Bank chief economist Darren Gibbs said: "If we get to April or June and it turns out things are falling apart a little bit globally and perhaps what we are seeing in emerging markets impacts the markets we care most about, China in particular, and feeding through into commodity prices, the Reserve Bank can adjust its policy stance at that point. There is nothing set in stone in terms of 100 basis points of tightening this year.

"But given where the domestic economy is at the moment certainly the first 50 won't be too damaging to the economy."