RB expected to prepare market for rate increases

"It's all about managing expectations. But in the sense of having to signal a food shop to Pavlov's dog. It could be a slobbering mess, up front, and with a fair bit of whimpering along the way," the BNZ Capital Markets Outlook says.

The Westpac Weekly Commentary offers similar sentiments, saying the challenge for the RBNZ in its statement this week, is to lay the groundwork for eventual tightening in a way that "doesn't scare the horses" and gives it some flexibility around the timing of increases.

"We expect that this statement will see a jettisoning of the last vestige of an easing bias and remove the expectation that rates will remain ‘at or below current levels through until the latter part of 2010'," it says.

Westpac believes the end goal is a gradual tightening cycle kicking off in the first quarter of 2010 and it also notes that some banks have begun to hike six-month fixed mortgage rates, which until now had been the only fixed term left untouched by increases.