The Reserve Bank Governor Alan Bollard is now facing some serious heat from financial markets over his pledge to keep bench market interest rates at or around 2.5% until the latter part of next year.
Stronger than expected inflation, retail sales and manufacturing data this week have all lead to markets betting that Dr Bollard will more likely hike the official cash rate in the first quarter next year.
The stronger inflation data in particular will be of a concern to Dr Bollard and does make his job trickier.
The inflation of 1.3% in the September quarter was higher than the Reserve Bank had been forecasting.
It also beat the predictions of leading economists, many of whom are now call his OCR pledge unrealistic.
So, will Dr Bollard change his stance on the timing of rate hikes?
It's possible. However there are still plenty of strong arguments for Dr Bollard sticking to his guns.
At an annual rate of 1.7%, inflation is still well below the top of the Bank's mandatory target band of 1-3%.
Unemployment is still rising in New Zealand signalling there is still plenty of slack in the labour market and little pressure on wages.
The government should be looking to reign in the rate of government spending over the next couple of years and any big extra spending that might boost inflation seems unlikely.
The higher than expected Kiwi dollar is having the effect of tightening monetary policy by reducing the amount of money coming into the economy via exporters, but it is also making imports cheaper.
There is still a great deal of uncertainly about the global economic recovery, and despite some conflicting messages, there is no suggestion that the US is going to suddenly start hiking rates any time soon.
Personally, I think that given these factors a hike in January is most unlikely.
However, there are couple of things that could force Dr Bollard to move a little earlier than the latter part of next year.
High on the list is the housing market. If its spring rebound continues and turns into something more solid, Dr Bollard will start to sweat.
Australia is also a problem.
Our leading trading partner is already in its tightening phase (the first country in the OECD ) and it seems highly likely that it will back up its recent 25 basis point hike with another one, possibly one of 50 basis points.
The Australian Reserve Bank seems determined to get interest rates back off a war footing and on to a more normal stance to prevent another asset boom.
This could create an unusual situation where by Australian has interest rates up to 1% higher than us for a long time. This could potentially give Australia an advantage over New Zealand when trying to attract scarce international capital.
Although, we should remember that Australia hasn't had an 18-month long recession like us and has also had far greater fiscal stimulus.
There are arguments on both sides of this debate.
All up, I personally think Dr Bollard still has a little bit of breathing space to keep his promise.
But it's getting tight.
If in the end Dr Bollard does have to hiker sooner than indicated. It won't be all bad.
He'll be doing it because our economy has improved at a far greater pace than anticipated.
The V-shaped economic recovery that markets have been predicting might just have become real.
