(Adds central bank projections, market reaction) WELLINGTON,...

(Adds central bank projections, market reaction)

WELLINGTON, Jan 26 (Reuters) - New Zealand's consumer price index (CPI) rose 0.4 percent in the fourth quarter, according to data released by Statistics New Zealand on Thursday.

Annual inflation was 1.3 percent versus 0.4 percent in the prior quarter, finally back in the Reserve Bank of New Zealand's (RBNZ) target range of 1 to 3 percent.

Economists polled by Reuters had forecast the CPI to be 0.3 for the quarter, with an annual rise of 1.2 percent.

In its November monetary policy statement, the RBNZ forecast a 0.2 percent rise in quarterly CPI and an annual rate of 1.1 percent, taking inflation back into its target band of 1 to 3 percent for the first time in two years.

An unexpected slowdown in inflation last year forced the central bank to slash interest rates to a record low of 1.75 percent. It has since signalled it is done easing as long as prices recover.

The New Zealand dollar rose to a 10-week high in the wake of the release to $0.7303 from around $0.7260.