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UPDATE 1-RBNZ expects inflation to rise gradually, favours lower NZ$

(Updates throughout)

WELLINGTON, Aug 10 (Reuters) - The Reserve Bank of New Zealand on Thursday said it still expected inflation to rise gradually as capacity pressures increase, underwhelming some expectations that it would strike a more dovish tone given recent soft economic data.

The central bank also said a lower New Zealand dollar would be favourable. The local dollar is up 6 percent so far this year.

The New Zealand dollar jumped briefly after the decision and the release of the monetary policy statement to NZ$0.7371, before retracing some of those gains.

"The trade-weighted exchange rate has increased since the May Statement, partly in response to a weaker U.S. dollar," RBNZ Governor Graeme Wheeler said in a statement.

"A lower New Zealand dollar is needed to increase tradables inflation and help deliver more balanced growth."

The central bank kept interest rates steady at record-lows of 1.75 percent for a fifth consecutive time and reiterated it would remain accommodative for a considerable period, sticking to language seen in recent statements.

It reiterated that growth in the first quarter was lower than expected, nodding to the recent softening in an economy which has recently enjoyed some of the fastest growth among advanced economies.

"We were expecting a little bit more dovishness within the statement, but clearly it shows that it's not going to take one or two data points to shift the RBNZ," Philip Borkin, senior economist at ANZ said.

"They're very much in neutral and the hurdle for action in either direction is pretty high." (Reporting by Ana Nicolaci da Costa and Charlotte Greenfield; Additional Reporting by Wayne Cole and Swati Pandey in Sydney; Editing by Sandra Maler)