Sustained improvement in net migration figures could cause market pricing to reduce the expectation of further rate cuts this year - or bring forward the timing for rate hikes in 2010, ASB's Business Weekly report warns.

"With little in the way of local data, offshore sentiment remains a key driver of local movements. Continued confidence in the US equity market is likely to see further lifts in NZ longer term interest rates," it says.

ASB economists continue to believe the Reserve Bank (RBNZ) will keep the official cash rate on hold at 2.50% this month and will keep rates at or below current levels until mid-2010.

Meanwhile, the Westpac Weekly Commentary highlights the two ‘R' words - recovery and rebalancing. While there has been much talk of recovery, Westpac draws attention to the other ‘R' word following comments from RBNZ governor Alan Bollard, who stated that the recovery could displace economic rebalancing.

"The RBNZ sees a risk that as the economy recovers, households could return to their previous borrowing and spending patterns, perhaps spurred on by rising house prices," it says.

Westpac economists say this view on rebalancing has moved from being a more alternative one to a more central view. Westpac continues to suggest that fixing for six months to one year offers the best value for mortgage borrowers.

The idea that the worst of the global recession is now behind us is "now almost taken as given", according to the BNZ Capital Markets Outlook. However, it stresses that doubts over the strength of the rebound remains.

In terms of interest rates, it says: "The short end of the curve remains in a very tight range around 2.80% with just a small chance of cuts priced in and hikes first priced for early 2010."

The current tight levels are likely to remain in place, unless there is a notable change in sentiment from the Reserve Bank, "or a significant change in bank bill margins due to a change in credit sentiment", it says.

The ANZ Market Focus continues to prefer floating rates, or a series of short fixes, saying the RBNZ is unlikely to act on their easing bias, but hikes are still a long way off.