There is a heavy expectation that the Reserve Bank will finally hike the official cash rate on Wednesday, regardless of Covid alert level restrictions.
A 25 basis point OCR hike (from a record low of 0.25 per cent to 0.5 per cent) is currently fully priced in by markets and forecast by nearly every economist in the country.
For many New Zealanders, hiking now while there is still uncertainty about the path of Delta outbreak, may be jarring.
But as ANZ chief economist Sharon Zollner says: "It's a weird old time for the New Zealand economy."
"Momentum and confidence is strong, but about 40 per cent of the economy is caught in a straitjacket," she said,
"However, the RBNZ has made it clear that they do not view lockdowns as a reason not to hike the OCR, and stressed in the days following the August Monetary Policy Statement that it considered the on-hold decision to be a short delay, not a cancellation of hikes."
In fact, commentary in its last MPS had markets racing ahead to proceed in even odds of a 50 basis point hike.
That expectation was dialled back in a speech by Reserve Bank assistant governor Christian Hawkesby.
"There's a lot we still don't know – like whether the length of the current restrictions will lead to more scarring than we've previous seen," ASB chief economist Nick Tuffley said.
"But the prudent approach is to tighten monetary policy slowly, rather than keep waiting.
The RBNZ shares that view, given assistant governor Hawkesby's comments last week about moving in 25bps increments."
Tuffley and ASB are expecting a 25bps OCR hike next week, and the same at the November and February meetings.
The bar was now set quite high for the Covid outbreak to derail hikes, ANZ's Zollner said.
The RBNZ has indicated it would need to be, on balance, a demand shock, which caused a sustained drop in business sentiment, she said.
That had not happened.
"Business sentiment has not only not stayed down – it barely fell at all! It's a picture of remarkable resilience and confidence that normal service will shortly resume," she said, citing the strength of the latest ANZ Business Outlook survey.
Westpac chief economist Michael Gordon also saw a hike coming on Wednesday and noted market expectations are for the OCR to rise to 2 per cent by late 2023.
But he sounded a note of caution.
"The common wisdom is that this lockdown will play out in the same way as previous ones: activity will be suppressed for a short period, restrictions will be lifted, demand will
quickly rebound, and the RBNZ will be back to facing the same pressures as before," he said.
"But that's not a given. As we've seen elsewhere, the Delta variant has proven much trickier to rein in, and our vaccination rate is still a long way from where it needs to be to provide effective levels of protection."
However, Zollner argues inflation pressure will continue to dominate policy direction.
"Even if elimination proves unattainable, there is generally cause for optimism that the economy will be able to get back most of its domestic freedoms over the summer, with lifting vaccination rates providing a pathway," she said.
Meanwhile, it was "looking increasingly like a perfect storm of global supply-side inflation pressures–oil back to US$75, coal, natural gas in Europe, China's electricity shortages, food prices, fertiliser costs, labour shortages, shipping disruptions and more," she said.
"It's looking less transitory by the day."
Zollner and ANZ are forecasting follow-up 25bp hikes in November, February, May and August next year, taking the OCR to 1.5 per cent.
• The Reserve Bank will release its Monetary Policy Review in a statement at 2pm on Wednesday.