The Reserve Bank is expected to hold fire from cutting interest rates next week until it can get a better steer on the inflation outlook, leaving November open for a reduction.

Governor Graeme Wheeler will keep the official cash rate at 2 per cent when he reviews monetary policy on September 22, according to a Reuters poll of economists.

Traders are pricing in a 24 per cent chance of a cut next week.

Wheeler has indicated he has at least another rate cut up his sleeve when lowering the OCR in August, and that how the economic data played out would determine whether more or less stimulus was required.


The RBNZ wants to avoid subdued inflation expectations bedding in, a task made difficult by a strong kiwi dollar making imports cheaper, but a rampant housing market meaning lowering rates too much could destabilise the financial system.

ASB Bank economists expect Wheeler will cut the OCR to 1.75 per cent in November, and that the risks were to the downside that the benchmark rate could go even lower early next year.

"The most striking change over the last few weeks has been the ongoing appreciation of the NZD, as it continues to defy RBNZ forecasts," ASB said.

"The NZD has found recent support from the bounce-back in dairy prices, as well as the positive interest rate differential with other developed economies and a favourable terms of trade."

The trade-weighted index climbed as high as 79.05 earlier this month and was recently at 78.01, still well above the 76 level the Reserve Bank had projected it would average in the September quarter.

ASB said that strength would probably lead to the Reserve Bank downgrading its tradeable inflation outlook, with weak consumer price increases key to further OCR cuts.

"There is also a real danger inflation expectation soften further, leading to a weak actual inflation and creating a vicious cycle," the bank said.

"The next round of RBNZ inflation expectation data is not due until October, while Q3 CPI (consumers price index) is slated for just before the next MPS (monetary policy statement)."

Government data on Thursday showed New Zealand's economy grew 3.6 per cent in the June quarter from a year earlier, with building activity driving those gains.

That sector is the country's only one showing signs of real capacity constraints leading to wage inflation, and record inflows of new migrants are seen as stifling pay increases which in turn have helped limit inflation for consumer goods.

HSBC economists raised their growth expectations for New Zealand, and if that can generate a modest lift in inflation, they say the Reserve Bank may not need to cut interest rates any further.