How changes in the OCR (official cash rate) affect us

Recently, the reserve bank has cut the OCR by 2.25% so how does that affect us?

When the official cash rate falls, floating rates typically follow it downwards. That's because floating rates are linked to the cash rate.

If you are on a fixed rate home loan you won't see any change to that rate from a shift in the OCR. That's because fixed loans are based around how much a bank pays to borrow money on the international market not the OCR.

When the OCR falls, the cost of breaking the fixed term on a mortgage also increases so weigh up the cost to break a mortgage against the potential savings before making any decisions.

When it comes to savings, interest rates on deposits are low and a cut to the OCR would likely send short term rates even lower. If the world economy doesn't pick up, there could be further cuts to the OCR next year, meaning deposit rates head even lower.

Inflation has been under 2% for some time, it's likely however, that the Reserve Bank would increase the OCR if inflation did occur. This would mean a higher deposit rate.

 

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Shannon CorbettComment