(Bloomberg) -- New Zealand’s central bank was surprised by data last week showing the economy shrank, but has no opinion yet on what it means for the interest rate outlook, according to Governor Adrian Orr.

The unexpected 0.3% contraction in third-quarter gross domestic product compared to the Reserve Bank’s forecast of 0.3% growth, while revisions showed the economy had been much weaker over the preceding year.

The data was “surprisingly subdued,” Orr told a parliament select committee Wednesday in Wellington. “We are internalizing that complex situation and will be back in February with our monetary policy statement.”

The RBNZ last month delivered an unexpectedly hawkish interest rate outlook, signaling an increased risk of a hike and ruling out any cuts until 2025. But the GDP release last week has led to increased bets that the Official Cash Rate will start to come down earlier, with ASB Bank Wednesday projecting a cut in August, six months earlier than it previously forecast.

Orr said there was a lot of data on employment and inflation to come before the RBNZ’s February statement. He wasn’t asked directly if the weaker economy had changed his view on interest rates.

A reason the RBNZ gave for its hawkish view was record immigration, which has moved even higher since its November rate decision.

“We have been surprised by the continued extremely high level net inward migration,” Orr said. “Do we have to remain more restrictive for longer with monetary policy, and also what does that mean for demand, for housing asset prices and the general inflation challenge.”

New Zealand has been similar to other nations like Australia and Canada that have seen strong immigration and sticky inflation, he said. Consumer prices rose 5.6% in the year through September and the RBNZ doesn’t see it returning to the 1-3% band it targets until the second half of 2024.

Orr said the key focus needs to be on suppressing core inflation and warned that won’t be easy.

“I can’t overemphasize enough that it’s core inflation that’s going to be our challenge ahead,” he said. “So much of that stuff is sitting within central and local government from rates, tax, whatever. The last five yards on the inflation battle is going to be tough.”

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