Kia ora! Let’s unpack the OCR — what it is, why it matters, and how it affects your mortgage and savings.
1. The OCR: Our economic steering wheel
- The Official Cash Rate (OCR) is the rate the Reserve Bank of New Zealand (RBNZ) charges banks for overnight lending and pays them for excess deposits
- It’s the RBNZ’s primary tool to keep inflation in a healthy range (1–3%, ideally around 2%) by tweaking how much – and how cheaply – money flows through the economy
2. How the OCR shapes interest rates
When the RBNZ adjusts the OCR, it changes the cost of funds for banks. Here’s how that ripples out:
- Floating (variable) mortgage rates typically track OCR movements almost immediately. A rise in OCR means banks pay more to borrow, so they pass on higher rates to borrowers
- Fixed-rate mortgages react more subtly. They’re based on wholesale or swap rates tied to future OCR expectations and global funding conditions
- Term deposits & savings accounts move in line with the OCR too: higher OCR generally brings better returns for savers
- Other loans (personal, credit cards, business) also become more or less expensive, depending on OCR adjustments
3. Why the RBNZ adjusts the OCR
- Tame inflation – If prices rise too fast, the RBNZ hikes the OCR, making borrowing more costly. Less spending helps slow inflation
- Boost growth – In a struggling economy, lowering the OCR makes borrowing cheaper, encouraging spending and investment
For example, on 28 May 2025, the RBNZ cut the OCR from 3.50% to 3.25%, aiming to support a slowing economy amid global risks . Earlier in February 2025, a larger cut from 4.25% to 3.75% was made to revive economic activity .
4. How fast do rate changes hit your wallet?
- Floating-rate borrowers usually see rate changes within a few weeks
- Fixed-rate borrowers wait until their next refix — and rates may already reflect multiple anticipated OCR moves
- Research shows about 80% of an OCR shift is passed to two-year mortgage rates within six months
5. What does this mean for Kiwis?
| Situation | What to expect |
|---|---|
| Floating mortgage | 📈 Repayments move up or down soon after OCR changes. |
| Fixed mortgage | 🔄 Your rate stays the same until your next refix—then it will reflect OCR expectations. |
| Saving or term deposit | 🏦 You’ll likely earn more when OCR is high, less when it’s low. |
| Looking to buy | 💸 Higher OCR reduces how much you can borrow; a lower one boosts borrowing power. |
6. Keep an eye on the OCR — and talk to your adviser
- The RBNZ meets about seven times a year to review the OCR
- After each meeting, banks review their rates. Floating rates shift quickly, and fixed rates get repriced at your next term rollover.
- Staying alert to OCR moves helps you:
- Decide whether to fix or float your mortgage.
- Understand changes to your savings returns.
- Plan major purchases like a new home.
Final thoughts
The OCR is like the RBNZ’s steering mechanism—nudging the economy faster or slower depending on what’s needed. For mortgage holders, savers, and buyers, its impact hits home quickly, especially via floating rates. Understanding how it works—and knowing what the RBNZ’s next move might be—can make a big difference in your financial journey.
If you’re thinking of switching your mortgage strategy or just want to chat about what rate environment suits you—get in touch! At Lendal Mortgages, we help Kiwis navigate these ups and downs with confidence.
Keen for more?
- Check out the RBNZ’s monthly OCR updates to see where rates are headed
- Compare floating vs fixed rates at tools like Sorted.org.nz or trade-me advice pages.
- Chat with us anytime — no question is too small when money matters most.
