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The official cash rate

The official cash rate is the interest rate set by the Monetary Policy Committee. It influences the price of borrowing money in New Zealand and allows us to influence the level of economic activity and inflation. It is the Monetary Policy Committee's main policy tool.

About the official cash rate

The official cash rate (OCR) was introduced in New Zealand in March 1999.  It is a conventional tool by international standards.

Before we had the OCR, we used a variety of tools to control inflation, including influencing the supply of money and indicating desired monetary conditions to the financial markets. We stopped using these tools when we introduced the OCR.

As the Monetary Policy Committee's (MPC) ability to lower the OCR became constrained during the COVID-19 crisis, we expanded our monetary policy toolkit. The MPC implemented a Large-scale Asset Purchases (LSAP) programme and a Funding for Lending Programme (FLP).

Read more about the monetary policy toolkit


The current official cash rate

Reviewing the OCR

The MPC reviews monetary policy seven times a year. Monetary Policy Statements are issued on four of those occasions.

Unscheduled adjustments to the OCR and other tools may occur in response to unexpected or sudden developments. To date this has occurred only twice. The first was following the 11 September 2001 attacks on the World Trade Center in New York, and the second was in response to the COVID-19 crisis.

Read about all our monetary policy/OCR decisions

The OCR and how it works

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The OCR is the wholesale rate for borrowing money. Most registered banks hold settlement accounts with us, which they use for inter-bank transactions. For example, if you make an EFTPOS payment, the money is paid by your bank to the bank of the recipient from these settlement accounts. We pay interest on settlement account balances and charge interest on overnight borrowing, at rates linked to the OCR. We set no limit on the amount of cash we will borrow or lend at these rates.

If the OCR is the wholesale rate for borrowing money, the retail rates are the market interest rates that consumers and businesses face – like mortgage rates or term deposit rates. Changes to the wholesale rate for commercial banks flow through to the retail rates for consumers and businesses, so market interest rates generally track changes in the OCR. The chart below illustrates that the 90-day bank bill rate (a benchmark market interest rate) closely follows the OCR.

A decrease in market interest rates makes people more inclined to spend more on goods and services. This is because borrowing money becomes cheaper at lower interest rates, while saving money becomes less attractive due to lower returns.

When people spend more or save less, economic activity, capacity pressure, employment and inflationary pressure increase. The opposite happens when the OCR increases and market interest rates rise.

How OCR changes flow through the economy

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Although the OCR influences New Zealand's market interest rates, it is not the only factor doing so. Market interest rates – particularly for longer terms – are also affected by foreign interest rates, because New Zealand financial institutions are net borrowers in overseas financial markets. Movements in overseas rates can lead to changes in interest rates even if the OCR has not changed.

More information

Read our Bulletin article about the additional monetary policy toolkit – RAMPed up