What is the Official Cash Rate and why should I care?

Okay people, today we have another three-letter economics acronym to add to your repertoire: OCR. The Official Cash Rate is hugely influential in New Zealand’s finance and property markets, yet relatively few first home buyers know what it is or how it can affect them. We’re here to change that.

What is the OCR?

The Reserve Bank of New Zealand (RBNZ) has the unenviable task of managing the country’s monetary policy and basically ensuring the economy doesn’t turn to custard. This responsibility includes setting the OCR, an interest rate that helps the country as a whole hit inflation targets (ideally around 2 per cent).

In August, the RBNZ reduced the OCR by 25 basis points to 2 per cent. A number of factors went into this decision, including weak global economic conditions, projected domestic growth, house price inflation and more.

Why should I care?

Financial mumbo jumbo aside, the OCR can have a very noticeable effect on your day to day life. How? Well, every bank in New Zealand is influenced to some extent by the RBNZ’s decisions, and will typically pass on OCR changes to customers. For example, if you have a floating rate home loan and the OCR goes up, it’s highly likely that your interest rates (and your repayments) will increase, too. Conversely, if the OCR drops, your repayments will probably go down.

It is important to note, however, that not all lenders will necessarily reflect OCR chances in their home loan rates. With this in mind, before committing to a loan it’s critical to compare mortgage rates in New Zealand to ensure you’re getting the home loan that not only best suits you as a buyer, but also makes the most of current market conditions.

Happy learning and comparing,

The PocketWise Team

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