What is the OCR and what does it do?

The Official Cash Rate (OCR) in New Zealand is like the Reserve Bank's way of steering the economy. It’s the interest rate that banks use when borrowing or depositing money with the central bank, and adjusting it helps control things like inflation and employment levels.

When the Reserve Bank raises the OCR, it generally means borrowing costs go up for everyone—mortgage rates get higher, and people tend to spend a bit less. This can slow down inflation. On the other hand, if they lower the OCR, borrowing becomes cheaper, which often encourages people to spend and invest more, giving the economy a bit of a boost.

The Reserve Bank looks at things like inflation and job numbers to decide if the OCR needs a change. Since it affects everything from loan rates to saving accounts, the OCR plays a big role in keeping New Zealand’s economy on track.

The Reserve Bank reviews this every few months and when this is expected to drop, people tend to want to wait before fixing in for any long periods of time (in case there are big drops)

Once you have locked a rate in, if you wanted to break this due to a drop in rates, you would be liable for break fees from a bank (these change daily and are calculated on current term time remaining and current interest rates). These can be thousands of dollars so need to be carefully considered to see if the pros outweigh the cons.