The lender previously forecast an OCR hike in late 2020, but has changes its views amid weakening construction numbers and a slowdown in the economy in the latter months of 2018.
Dominic Stephens, chief economist at Westpac, says the OCR outlook "is evenly balanced for the foreseeable future". He adds: "The biggest motivation for changing our OCR call is the construction outlook – it now looks as though construction activity will peak in 2019 and dissipate from 2020. Second, there is increasing evidence that the economy lost momentum in late-2018."
Stephens believes the central bank's OCR forecast will be flat until "at least" 2021. He believes the Reserve Bank will adopt a more neutral outlook at this week's OCR/MPS announcement, and says the next move could be up or down, amid continued uncertainty.
Westpac's change of heart comes as wholesale interest rates markets price in an 80% chance of an OCR cut this year. Stephens believes the chance of a cut is "below 50%", as he expects the economy to recover.
The bank's views comes after the lender cut its one year special rate below 4% last month. KiwiBank has also cut rates below 4% this year.
Stephens is the latest economist to take a more dovish view on the economy. ANZ's Sharon Zollner expects the OCR to be slashed to 1% in 2020.
Economists do not expect the OCR to change this week, but believe the central bank will outline a gloomier forecast for the economy.