However, Credit Suisse expects a more dovish stance: "Although the external and domestic economy has been gradually improving, headwinds may still arise over the trajectory of the recovery, in our view. The lack of imminent inflation risk and uncertainty over future growth path is likely to prompt the BOK to stay prudent and delay the commencement of the interest rate normalization process," it said in a report.
Persistently low inflation remains the BOK's main obstacle. In May, the consumer price index rose to a 19-month high of 1.7 percent on year, but that was still below the 2.5 to 3.5 percent target rate.
With two interest rate hikes under its belt this year, the Reserve Bank of New Zealand (RBNZ) is currently considered the world's most hawkish central bank. The consensus view for Thursday's meeting is for a 25 basis point cash rate hike to 3.25 percent after Governor Wheeler signaled more hikes at its April meeting.
However, Kathy Lien, managing director of FX Strategy at BK Asset Management, believe rates will remain unchanged due to a downturn in economic data. Apart from declines in consumer spending, manufacturing activity and housing growth, Lien notes that the economy's biggest problem is the collapse in dairy prices. Dairy constitutes a third of exports by value and prices are down over 20 percent since February.
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"Under this backdrop it will be very difficult for the RBNZ to continue tightening. A pause would not only help the economy but would also drive the New Zealand dollar lower, an ideal outcome for a central bank that threatened to intervene in the foreign exchange market to weaken their currency in April," she said in a note on Tuesday.