The Reserve Bank left the Official Cash Rate unchanged at 3.5 percent, with the next move likely to be a rise late next year.

Westpac’s economists said the release accompanying the announcement was more hawkish than had been expected. It reintroduced an explicit hiking bias, saying some further increase in the OCR was expected at a later stage. But they said they would be surprised to see the Reserve Bank move at all next year.

New Zealand’s economic growth is running at an annual rate of around 3½ percent. While dairy prices have declined sharply, domestic demand has retained momentum, supported by the ongoing growth in consumption and construction activity.

Interest rates are low by historical standards and continue to support domestic demand. Growth is expected to remain at or above trend through 2016, with unemployment continuing to decline. Modest inflation pressures suggest the expansion can be sustained for longer than previously expected with a more gradual increase in interest rates.

Risks to the growth outlook include dairy prices, which are expected to recover in 2015, the overvalued exchange rate, and the strength of construction activity. Inflation risks include the impact of rising capacity pressures on domestic inflation, the response of house prices to the strong migration inflows, and the impact of lower oil prices.

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