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The official cash rate (OCR)

We set the OCR to influence interest rates. We use our influence to keep inflation low and stable.

What is the OCR?

Our Monetary Policy Committee (MPC) reviews the OCR 7 times a year.

We use the OCR to achieve and maintain price stability. To keep prices stable, the Government has set us an inflation target between 1% and 3% over the medium term with a focus on the 2% midpoint.

Increasing the OCR increases interest rates and helps bring inflation down.

Learn about how the OCR has changed over time

5.25 %

Official Cash Rate

Updated: 2:00pm, 14 Aug 2024

Next update: 2:00pm, 9 Oct 2024

Common questions about the OCR

Q and A with our Chief Economist

Our Chief Economist Paul Conway explains how the OCR influences inflation and interest rates.

Audio: Kia ora, I'm Paul Conway, Chief Economist at the Reserve Bank of New Zealand. Here at Te Pūtea Matua, we use the OCR or Official Cash Rate to achieve and maintain price stability and support maximum sustainable employment in our economy. Our goal is to keep inflation between 1 and 3% over the medium term. But lately inflation has been far too high. For this reason, we have been increasing the OCR to reduce spending and encourage savings. So how does raising the OCR help bring down inflation? Well, higher interest rates make it more expensive for people to borrow and encourage people to save. Borrowers with a mortgage or other debt have to increase their interest payments and so tend to spend less as interest rates rise.

Savers, people with money in the bank earn a higher return on their savings, encouraging them to save more. Higher interest rates also tend to increase the exchange rate, making it effectively cheaper to buy foreign products or imports, which also help bring down overall inflation.

Higher interest rates also mean New Zealanders expect lower inflation in future, which encourages businesses to set lower prices for their products today and for workers to accept lower pay increases, which also works to lower inflation in our economy.

Text on screen: How does the official cash rate affect interest rates in the economy?

Audio: The OCR effectively sets the interest rates on the deposits and loans that commercial banks hold with the Reserve Bank. Banks tend to set the interest rates that they charge and pay on mortgages and deposits over the life of the loan or deposit. So, for example, a two year mortgage rate will factor in what banks predict the OCR to be over the two year term of the loan.

Text on screen: How will raising interest rates affect New Zealanders?

Audio: If you have a floating rate on a loan or mortgage, you're no doubt finding that the cost of your repayments are going up. If you have a fixed rate mortgage, then repayments remain the same until the end of that fixed rate period. And if you have savings, you'll be noticing that you're earning a bit more interest on your money than you were, say, a couple of years ago when interest rates were exceptionally low. This will encourage New Zealanders to spend less and to save more, which will help bring inflation down in our economy.

Inflation is no one's friend. It makes life more expensive and complex for New Zealanders. It's like a pay cut and a tax on your savings rolled into one. This is why it's crucial for the Reserve Bank of New Zealand to get inflation back into our target range. Thank you.

The OCR sets the interest rates on the deposits and loans that registered banks have with us. This affects their earnings and costs, and influences how they set their deposit and loan interest rates for you, as their customer.

Bank products usually have terms of several months to several years — for example, a 6 month term deposit, or a 2-year mortgage. The interest rates on the longer-term products depend on what banks’ think will happen to the OCR over the life of your deposit or loan.

We can influence interest rates by:

setting today’s OCR
influencing bank’s expectation for the evolution of the OCR.

This means when we increase expectations for the OCR, banks will usually increase their mortgage rates, business lending rates, and term deposit rates.

The OCR influences many other rates in New Zealand, including those you might have for a loan, mortgage or savings account. We raised interest rates because inflation is too high. Raising interest rates is the main tool we use to get inflation down.

We know that higher interest rates means many people will face higher borrowing costs. And some businesses will face higher loan rates.

Higher interest rates on top of higher costs for a wide range of goods and services may mean some people may need to limit their spending. However, generally New Zealand household balance sheets are in good shape, with increased savings over the past couple of years.

While there are impacts from higher interest rates, we need to lower inflation for a healthy economy where people can plan for the future and where hard-earned money keeps its value.

That’s why we have raised interest rates since October 2021. Doing this will help make sure inflation comes back down.

If you have a home loan or mortgage

If you have a loan or mortgage that charges you a variable interest rate, you might find that the cost of your repayments goes up.

If you’re on a fixed rate you won’t see any change until the end of your fixed period.

It’s important to understand how a change in interest rates could impact your ability to pay. You can use a mortgage calculator to work out how your monthly payments might be affected.

Try the mortgage calculator on sorted.org.nz

If you are saving for your first home or for your retirement

If you have savings in a bank account that pays interest, then you might see interest rates on your savings go up.

How house prices affect financial stability

By encouraging less spending in the economy

Right now, New Zealanders are willing and able to buy more goods and services. This higher demand makes prices rise on these scarce products.

Higher interest rates make it more expensive for people to borrow money and means that people get more back on their savings. This means people are less willing and able to buy goods and services and more inclined to save.

If people spend less on goods and services overall, then the prices of those things tend to rise more slowly or even fall. This means a lower rate of inflation.

By increasing the exchange rates

Interest rates also can also affect inflation through their effect on the exchange rate.

Higher interest rates usually lead to higher exchange rates. This makes it cheaper to buy foreign products which lowers inflation. The higher exchange rate also makes our exports more expensive for people overseas. This helps to lower export revenue and helps to slow aggregate demand in the economy.

By reducing expectations for inflation in the future

Higher interest rates generally mean New Zealanders can expect lower inflation in the future. This may mean workers are more willing to accept lower wage increases and businesses are more willing to set lower price increases. Lower prices mean a lower rate of inflation.

The action we take to keep inflation low and stable is called monetary policy.

Find out more about how we use monetary policy to control inflation

Past OCR announcements

See a timeline of our past monetary policy and OCR announcements.

View our past announcements

Upcoming OCR announcements

Find out when we announce the OCR and publish the Monetary Policy Statement.

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