The Reserve Bank's historically low interest-driving official cash rate of 2.5% is expected to remain unchanged when reviewed on Thursday, but floating mortgage holders are likely to begin shopping to lock in fixed-term mortgages.
With annual inflation at 5%, well beyond the Reserve Bank's target range of 1%-3%, its tightening cycle to raise the official cash rate (OCR) is now being factored in beginning in the fourth quarter of this year, as opposed to indications of early 2012.
Better than expected gross domestic product data earlier in the month also underpins signs of recovery, but is pressuring higher inflation rates.
Some economists are picking the OCR will remain unchanged on Thursday, the first shift coming towards December, but last week others raised the possibility of increases in September or October.
ASB economist Christina Leung said the tone of the Reserve Bank's Thursday review was likely to reflect "cautious optimism" over underlying recovery of New Zealand's economy.
"Added to this are the emerging signs of inflation pressures off the back of improved demand," she said.
"[However] these developments would likely make the Reserve Bank less comfortable."
Westpac chief economist Dominick Stephens said while expecting the OCR to be held, he believed the Reserve Bank would maintain its signal for a gradual tightening "over the next couple of years".
"An extended period of [OCR] tightening is certainly on the way; now is the time for [floating mortgage] borrowers to fix," he said in a statement.
The stronger than expected GDP figures and rising inflation would have to be balanced against the record exchange rates between the New Zealand and US dollars and an otherwise "uncomfortable global outlook".
While separate solutions are afoot to solve the US potentially defaulting on debt repayments and Europe's huge sovereign debt issues, Mr Stephens said there was a case for the Reserve Bank to "wait and see how they pan out", before forging ahead with plans to raise rates.
With the OCR at its record low 2.5%, it is already attracting investors as a haven for higher interest and strengthening it further - but only while there appears to be some global stability at hand.
Mr Stephens said the Reserve Bank's "insurance policy" of having cut the OCR by 50 basis points almost immediately after the February quake in Canterbury, was no longer necessary to maintain.
"With the benefit of hindsight [it] was probably more than was needed." Ms Leung said the kiwi dollar had steadily risen in value since the Reserve Bank's June monetary policy statement - hitting a 30-year high last Thursday of US80.43c.
"Frustratingly for the Reserve Bank, there is little it can do to offset the current strength of the New Zealand dollar," she said.
The kiwi had lifted against its Australian counterpart as its market was pricing in cash rate cuts during the coming year, making the Australian dollar less attractive.
Similarly, the weakness in the greenback and euro were also "well beyond the Reserve Bank's limited influence".
Banks' reports late last week forecast strong commodity prices and Asian demand for commodities could possibly keep the kiwi at higher levels for several years ahead.
