(Updates to add detail from NZIER release, comment from economist)
WELLINGTON, Oct 4 (Reuters) - New Zealand business confidence increased in the third quarter but subdued inflationary pressures will likely mean the central bank cuts rates in November, a private think tank said Tuesday.
A net 26 percent of firms surveyed expected general business conditions to improve compared with 19 percent in the previous quarter, the New Zealand Institute of Economic Research's quarterly survey of business opinion (QSBO) showed. Business confidence is at its highest level since mid-2014.
There is "solid momentum in the economy," said NZIER Senior Economist Christina Leung.
Confidence was largely buoyed by an increase in dairy income. Global dairy prices, which have tumbled more than 50 percent over the past two years on oversupply and waning demand from China, have begun to show signs of improvement.
Given that dairy is a key component in the pacific nation's economy, the news has lifted confidence, particularly in dairy-intensive regions. Confidence is also strong in tourism-intensive regions, with New Zealand receiving record numbers of tourists.
The survey's measure of capacity utilisation was 92.5 percent, compared with the previous quarter's 92.9 percent.
Pricing indicators, however, remain very weak. A net 4 percent of firms reported they cut prices in the past quarter.
"This points to inflation remaining subdued over the remainder of 2016," Leung said.
Given that the central bank is focused on bringing inflation back into the 1 percent to 3 percent target band, "we do expect an Official Cash Rate cut in November and another one some time in the middle of next year," she said.
New Zealand's central bank is widely expected to cut the official cash rate by 25 basis points to 1.75 percent at the November meeting.
