Most economists are predicting an official cash rate hike in April of 25 basis points which falls broadly within the Reserve Bank statement of "the middle of 2010".

Westpac, JP Morgan, ASB and Deutsche Bank all predict an increase at the April meeting of 25 basis points with Deutsche Bank predicting a steeper 50 basis points.

BNZ is the only bank taking a different stance, predicting a rise of 25 basis points at the June 10 meeting.

BNZ chief economist Tony Alexander says he expects rate increases to then continue by 25 basis points until the rate reaches somewhere close to 6% in 2012.

April is the predominant view at this stage because of domestic dataflow from mid-March onwards.

Deutsche Bank says there will be a particular emphasis on the monthly housing and consumer spending reports, the Q4 GDP report in late March and the NZIER's QSBO business survey in mid-April.

"Our current judgement is that this data will be sufficiently robust to encourage the RBNZ to begin raising the OCR at the 29 April meeting.

"However that hike could fairly readily slip into the following meeting on 10 June if there is any ambiguity in data."

Westpac, ASB and JP Morgan are all expecting an April hike of 25 basis points and JP Morgan says this is because a 25 basis point move should suffice given that the shift of borrowers towards shorter-dated borrowing and floating rate loans means the Reserve Bank will "get more bang for its buck when it does tighten policy".

ASB says when it originally set its view for 50 basis point hikes it was taking particular notice of Bollard's comments that when rates are at extroadinarily low levels, withdrawing stimulus in 25 basis point steps can take too long.

"Nonetheless, since Alan Bollard made those comments, funding costs have remained surprisingly elevated and mortgage rates have increased earlier than expected."

Use links to read full reports. Westpac's comments below

OCR on hold, but tightening draws nearer

This morning the RBNZ left the cash rate on hold at 2.50% as widely expected, but firmed up the message that a tightening cycle is on the way.

They key changes were in the final 'bias' paragraph. In December the RBNZ noted that if the recovery continued as expected, "conditions may support beginning to remove monetary stimulus around the middle of 2010".

This time they stated that "we would expect to begin removing policy stimulus around the middle of 2010" (our emphasis).

Also notable was the omission of the final sentence of the December statement: "Recent tightening in financial conditions, driven by a higher exchange rate, increased long-term interest rates and a wider gap between the OCR and bank funding costs, reduces the need for more immediate action."

While all of those factors are still in place, the omission suggests that they no longer present a compelling case for delaying OCR hikes. While recent economic data has generally panned out as expected, this in itself has helped to resolve some of the uncertainties that the RBNZ noted in December - in particular, the extent to which consumer spending would respond to the resurgence in the housing market last year.

The RBNZ acknowledged that there has in fact been a pickup in consumer spending, although they noted that credit growth remains subdued.

Market implications

Swap rates have risen about 3bps, reflecting the slightly more hawkish flavour relative to December. This statement supports our view that the tightening cycle will begin in late April (which falls broadly within "the middle of 2010").

We expect the first move to be a 25bp hike, though we note that an increasing number of forecasters are predicting the RBNZ will kick off with a 50bp hike, and market pricing may start to shift in that direction (markets were pricing a 25bp hike in April prior to the statement).  - Westpac