The Reserve Bank will closely monitor the ability of the country's major banks to successfully raise money overseas if Europe's financial markets worsen.
The central bank left the Official Cash Rate steady at 2.5% on Thursday, due to Europe's ongoing debt crisis and slowing global growth.
Reserve Bank governor Alan Bollard says Europe's problems have had a limited effect on export demand and bank funding costs so far, domestic demand has gradually picked up and core inflation sits close to 2% - the middle of the inflation target band.
However, Dr Bollard says that could change quickly and a major concern for New Zealand is whether there is increased contagion in a way that could either hurt funding prospects for Australasian banks or cause reduced export demand in China and other emerging markets.
New Zealand is reliant on foreign money despite a rise in savings levels and banks are expected to tap overseas money markets early next year to make up the shortfall.
Dr Bollard says it is a risk to the country's recovery if Europe's financial woes deteriorate, although savers could benefit.
Rating agencies have downgraded the country's creditworthiness, citing the country's high levels of debt, and ANZ New Zealand's chief economist Cameron Bagrie says that leaves the country vulnerable.
"We've got a net external liability position as a country of 70% of GDP, now that's how much we have put on the credit card. So that leaves New Zealand very susceptible to swings in global risk sentiment and of course higher cost of funds", he says.
Mr Bagrie says New Zealand banks don't currently need to borrow money overseas.
However, he says the longer it takes the politicians to sort out the situation in Europe the greater the potential impact could be on New Zealand early in 2012.
The Reserve Bank's picking rate hikes in the second half of the year, with an eventual peak of 3.75% later in 2013.
TD Securities head of Asia Pacific research Annette Beacher says Dr Bollard has chosen a fairly safe path and September or December is the likely start of rate increases.
The Reserve Bank produced an alternative scenario, where the European crisis rumbles on and growth falls more sharply.
Even then, the central bank does not expect to cut interest rates.