The announcement of a "huge" lift in the dairy payout forecast for the current season by Fonterra - an increase of 95 cents per kilogram of milk solid - means the rural economy is likely to be in much better shape than anticipated, it says. This news comes as Quotable Value's monthly house price measure "edged" into positive annual growth at 0.2%.

The ASB economists add that the "surprisingly strong" lift in house prices over the last six months is likely to make the Reserve Bank of New Zealand (RBNZ) uncomfortable.

Meanwhile, the Westpac Weekly Commentary highlights the toll the recession has taken on New Zealand's labour market, following last week's Household Labour Force Survey release for the September quarter. It revealed the unemployment rate had jumped 0.5% to hit 6.5%.

It also reiterates its previous statement that with floating and one-year fixed mortgage rates at similar levels, there may look to be little advantage in fixing right now. However, those that wait to see the "whites of the RBNZ's eyes" are likely to face much less attractive options, it says.

The ANZ/National Bank Market Focus suggests Fonterra's announcement will overshadow the weak labour market data.

"The market is likely to keep looking for earlier hikes than what the RBNZ flagged, especially in light of the big upward revision to the dairy payout," it says.

Meanwhile, the BNZ Capital Markets Outlook report notes the release this week of the RBNZ‘s six-monthly Financial Stability Report. It suspects it will pay particular attention to the impact higher bank funding costs are having on retail and corporate lending rates.

NZ banks have spread their funding base by tapping more into local depositors' funds and lengthening funding maturities from offshore, it says.

"Given the limited (notwithstanding higher savings rates) pool of local deposits, and upward sloping yield curves globally, both of these options - encouraged by the RBNZ incidentally - are living the average cost of funding for the banking system," it says.

At current levels, mortgage rates suggest an Official Cash Rate closer to 4.5%, rather than the 2.5% actually in place.

"It also provides a key reason why the RBNZ will be in no hurry to lift the OCR," it says.