Reserve Bank governor Alan Bollard is walking a tightrope in a stiff breeze, trying to balance the risks of even higher inflation on the one side against the possibility if a sharp economic slowdown on the other other.
In the meantime it is a case of
"when in doubt, do nowt" and as expected he has left the official cash rate on hold at 8.25 per cent.
The bank has scaled back its forecasts for economic growth to below 2 per cent over the next couple of years. If its forecasts are right we are less than half-way through a five-year stretch of below-average growth.
But even so it expects inflation to remain above 3 per cent for the rest of this year and come off only slowly after that.
That is what rules out "insurance" cuts to interest rest of the kind he made early in his term in 2003.
The risks to growth are increasing.
Domestically the housing bubble is deflating. The bank now expects house prices to fall by about 5 per cent this year and not to recover for a couple of years after that. It sees a risk of a sharper housing downturn as banks' funding costs, and with them mortage rates, rise while house prices are overvalued - by perhaps 20 or 30 per cent.
Internationally its forecasts assume world growth will slow to just below its average rate over the 10 years. But it admits things could get a lost worse than that.
There are sources of buoyancy too, however, in a tight labour market, high dairy prices and the prospect of tax cuts.
The bank's projections pencil in a cut to the OCR about the middle of next year.
But with all the uncertainties and dangers around it may well come sooner than that.
