Mortgage and term deposit rates look set to fall sharply over the next six months.
Falling dairy prices and a low inflation rate have increased the odds of there being three more interest rate cuts before the end of the year.
That would take the Official Cash Rate (OCR) from 3.25 percent back to the record low of 2.5 percent.
Westpac's chief economist Dominick Stephens thinks the OCR could be cut to a new record low of 2 percent.
His prediction is there will be one cut of 50 basis points (half a percent), most likely in September, but possibly as early as next week's OCR review. He also expects three cuts of 0.25 percent each.
The Reserve Bank has room to cut rates because inflation is weak.
The Consumer Price Index rose 0.4 percent in the June quarter and it would have been flat if there had not been an 8 percent rise in petrol prices.
Westpac has also revised its forecast milk payment to farmers to $4.30 per kilogram of milk solids. That is lower than last season's $4.40, and well below Fonterra's current forecast for this season of $5.25.
It is increasingly looking like Fonterra will have to cut this season's forecast, something which could happen as early as next week.
The timing of Fonterra's job cuts is being questioned.
The co-operative is axing 523 jobs as it tries to cope with the plunging global dairy prices. It is hoping to save up to $60 million a year through the job losses.
But Waikato University professor of agribusiness Jacqueline Rowarth says now is not the time to cut staff.
She told the TV3's Paul Henry show this this morning that Fonterra should have cut staff numbers three years ago when dairy prices were much higher.
"I think Fonterra should have done it three years ago when the prices were high. For them to be reacting right now and creating chaos within its own ranks it is very worrying for the farmers. Now is the time when all the staff need to be focussed on positioning product to the best value and best returns for the farmer but instead they are concerned whether they will have jobs or not."
Manufacturers are providing a rare bit of good news for the New Zealand economy.
Manufacturing activity increased in the June quarter, according to the latest BNZ - Business New Zealand Performance of Manufacturing Index (PMI).
The seasonally adjusted PMI for June was 55.2 - an increase of 3.2 points from May.
A reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining.
June's reading was the highest monthly value since February and the sector has now been in expansion for 33 consecutive months.
"Overall, the first six months of 2015 have seen more volatility in overall activity compared with recent years, although the index continues to show the sector in growth mode," says BNZ senior economist Doug Steel.
"While economic growth might have slowed a bit from last year's strong pace, these indicators suggest there is still a reasonable rate of expansion occurring despite the clear drag from the dairy sector."
Consumer confidence
Consumer confidence is heading in the opposite direction, with the latest ANZ - Roy Morgan New Zealand Consumer Confidence report showing sentiment is back below historical averages.
It fell 6 points in July from 119.9 to 113.9. That is the lowest it has been in almost three years.
Sentiment has fallen 15 points so far this year and is below its historical average (119.1).
"A winter chill has descended. Consumers are less confident about the economy over the year ahead, but remain relatively upbeat about their own household's situation," says ANZ senior economist Philip Borkin.
A net 4percent believe they are financially better off than last year, which is slightly down on last month.
The falling dairy prices and the prospect of more rates cuts are the reason for the New Zealand dollar's very sharp fall yesterday.
The New Zealand dollar was trading at 65.13 at 8am today. That compares to 67.07 US cents 48 hours earlier, so it has fallen just over 1 percent in 24 hours and 3 percent in two days.
It is trading at 87.98 Australian cents, compared to 90.04 two days ago.
The Kiwi is 59.88 Euro, whereas it was 60.95 on Wednesday. It has slumped to 41.73 pence, compared to 42.90 two days ago.
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