(Bloomberg) -- New Zealand’s central bank is set to leave interest rates unchanged for a fourth straight meeting but may push back against expectations that it will start to loosen monetary policy next year.   

The Reserve Bank will hold the Official Cash Rate at 5.5% Wednesday in Wellington, according to all 21 economists surveyed by Bloomberg. Fresh forecasts published by the bank could reinforce that policymakers intend to keep rates at the current level for a prolonged period, countering market bets that an easing may be only months away.

“The RBNZ faces a communications challenge, given the market is itching to price cuts more aggressively,” said Sharon Zollner, chief New Zealand economist at ANZ Bank in Auckland. “We therefore expect a firm tone to the policy assessment.”

The RBNZ was one of the first central banks to begin raising rates in the wake of the pandemic and investors are betting it will be among those pivoting to cuts next year, possibly as soon as May. Inflation slowed more than expected to 5.6% in the third quarter and the labor market is cooling, easing pressure on wages. 

Still, the RBNZ in August raised its forecast track for the OCR, implying the risk of a further increase, and last month said rates may need to stay high for longer than it previously expected to return inflation to its 1-3% target range.

Wednesday’s rate decision, the final policy review of the year, will be released at 2 p.m. local time and Governor Adrian Orr will hold a press conference an hour later. He will be quizzed on the new government’s plan to strip the central bank of its dual mandate and return it to a sole focus on inflation. 

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Coalition documents released last week also show the government intends to take advice on deeper RBNZ reforms, including giving it specific time-frames to achieve policy goals, removing the Treasury observer from the Monetary Policy Committee and even returning to the previous model of the governor being the sole decision maker.

“To us this appears all about making the governor accountable for outcomes so that the government has someone to ‘blame’ if targets aren’t achieved,” said Stephen Toplis, head of research at Bank of New Zealand in Wellington.

The government plans to deliver tax cuts next year that could stoke inflation, but it is also pledging to cut spending and reduce the size of the civil service, which may curb demand.

While immigration is at record levels and there are signs that the housing market is starting to recover after a prolonged slump, most economists are now of the view that rates have peaked and the next move will be down, though they expect the RBNZ to be wary of signaling cuts too soon.

“The RBNZ will want more data under its belt, specifically inflation prints, before changing direction,” said Jarrod Kerr, chief economist at Kiwibank in Auckland. Still, “inflation is falling, the labor market is loosening, and the economy is slowing. The RBNZ can sit tight, watch the data unfold, and simply trust the process. Monetary policy is working.”

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