No rate relief likely this week

All 10 economists surveyed by Good Returns expect Bollard to leave his official cash rate (OCR) unchanged at 8.25% on Thursday.

With bank funding costs having risen steeply this year in the wake of the global credit crisis, all economists now believe Bollard's next move will be down. However, they differ widely from expecting a softening in tone as early as this week and an OCR cut before the end of the year to no cut before June next year.

Robin Clements at UBS New Zealand says with the wheels falling off the housing market and business and consumer confidence at decade lows, Bollard risks holding interest rates high for too long. He says Bollard may soften his rhetoric this week.

Darren Gibbs agrees and says Bollard may highlight the downside risks to growth. "This will soften the tone of the statement relative to the March monetary policy statement."

Sharon Zollner at Westpac is at the other extreme, not predicting an OCR cut until June 2009.

"We expect the current slowdown isn't going to break the back of inflation expectations," McCaw says. Even when Bollard does start cutting, he's likely to have to keep monetary policy reasonably restrictive, she says.

Jason Wong at First NZ Capital says wholesale interest rate markets have priced in a 100% expectation of no OCR change this week. He is expecting an OCR cut early next year. "It's not on the near-term horizon because inflation's still a big issue for the bank and that limits the ability for them to ease in this environment."

Nick Tuffley at ASB Bank says while forward indicators point to heightened risk of a substantial economic slowdown, inflation pressures seem to be ratcheting up.