What effect does the OCR have on interest rates?

For the fourth time in a row, the Reserve Bank of New Zealand (RBNZ) has raised the level of the Official Cash Rate or OCR. This has been done in an effort to try and control inflation which is rising rapidly.

Currently, inflation levels are at the highest they’ve been for three decades, and the RBNZ are desperately trying to stop it from breaking the 7% mark. High inflation could potentially damage and stall the economy, so it’s a delicate balance keeping things under control. As it stands, inflation is already 3% ahead of target, which means drastic action will have to be undertaken to rein it in.

An increase in the OCR means an increase in interest rates, which helps to keep the runaway housing market in check and cool housing prices. It also helps to calm the level and speed of inflation as well as soothe the supply and demand issues which are a result of Covid-19.

Currently the RBNZ is expecting the OCR will peak at 3.35% by the end of next year. It’s currently sitting at 1.5%, which means we can expect to see a number of increases in interest rates over the next year or so. This means many homeowners are faced with constantly rising mortgage repayments, however this will be gradual over the next while. It’s a good time now to plan how the interest rate rise will affect you, and create a plan for how you will manage this. With the cost of living on the rise, budgeting and financial planning has never been more important.

Since rates are expected to rise, it could be a good time to look at locking in a fixed rate on your mortgage for a couple of years. While interest rates have been rising lately, in the grand scheme of things, they are still really low based on past history, so now is a good time to lock in a rate.

Talking with a mortgage advisor about how to structure your loan with a plan for the future is a good idea, and something we can help with. Every individual is different and has different financial goals, so we can help you create a plan that is customized to you. Get in touch with us today and let’s assess your mortgage to ensure you are prepared for what’s to come.