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Everything you need to know about the OCR.
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On Wednesday, the Reserve Bank will deliver its Monetary Policy Review and update our Official Cash Rate (the OCR).
You’ll no doubt have heard those three letters ‘OCR’ here, there, and everywhere, and in case you need a refresher on what it is, and how it affects you, BNZ’s Chief Economist Mike Jones gives Newsable an OCR 101.
What is the OCR?
“The OCR is the Official Cash Rate, which is actually the interest rate on banks’ bank accounts.
So, banks have bank accounts with the Reserve Bank. So when the OCR changes it changes the interest rate the banks are paying, and then the banks go and change their interest rates which may affect the likes of you and I.”
READ MORE:
* How much higher are home loan rates going to go?
* Here’s what the Reserve Bank doesn’t want you to know about its OCR decision this week
* How to give less of your hard-earned money to the bank
Why does the OCR matter?
“It sets the baseline interest rate, if you like, for other interest rates in the economy.”
Does it affect people without mortgages?
“Yes, there are probably two ways. One, is that if you’ve got savings in a savings account, you may or may not have noticed you’ll be getting better returns on that saving through higher interest rates.
“The other is probably more indirectly.. It does tend to have some pretty big downstream effects on the economy through things like wages, employment, unemployment, and the exchange rate.”
What do you expect will be announced tomorrow?
“We [BNZ] think we’ll see another quarter of a percentage point lift in the OCR, that would take it to 5%. I should add – that’s not a particularly brave forecast. Most people that look at these sorts of things expect that same percentage increase.
“Perhaps the more important part of this week’s statement is the Reserve Bank may just give a hint that it’s getting close to the end in terms of the interest rate increase it’s been putting through. We’ve now had 10 in a row, this will be the 11th. Most people are starting to think we might be getting close to the finish line, if you like.”
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