ASB Bank economists expect the Reserve Bank to keep interest rates on hold until September 2013, before starting what they say will be a very gradual tightening cycle that will see the official cash rate peak at 4 per cent by mid-2015.
The bank's economists said their prediction was against a backdrop of ongoing global uncertainty, offset by a gradual recovery in New Zealand economic growth which was underscored by earthquake reconstruction activity and a firmer housing market.
"Ongoing global risks will need to be weighed against gradual improvement in domestic spending, in an environment where low interest rates are encouraging a recovery in borrowing demand," the bank's quarterly economic forecasts said.
The ASB has pushed its prediction of a rise in the official cash rate out to September 2013 from its previous forecast of June that year.
"While the Reserve Bank's low expectations for New Zealand trading partner growth look reasonable, we continue to expect domestic inflation pressures will be stronger in coming years than the Reserve Bank's forecasts show.