UPDATED 10.40PM: The Reserve Bank's keeping the Official Cash Rate at three and a half percent.

That's despite the housing market heat rising to six and a half percent in the three months to January, with Auckland again leading the charge at 13 percent.

House price inflation is expected to peak later this year and then ease as more houses are built.

Governor Graeme Wheeler says the domestic economy remains strong.

"Falling petrol prices have increased households' purchasing power and lowered the cost of doing bushiness."

But he says a number of factors are weighing on domestic growth.

"These include drought conditions in parts of the country, fiscal consolidations, reduced dairy incomes, and the high exchange rate."

Wheeler says a substantial downward correction in the real exchange rate is needed to put New Zealand's external accounts on a more sustainable footing.