The Monetary Policy Committee has agreed to leave the Official Cash Rate (OCR) at 5.50 per cent.
The New Zealand economy continues to evolve as anticipated by the Monetary Policy Committee. Current consumer price inflation remains above the Committee’s one to three per cent target range.
A restrictive monetary policy stance remains necessary to further reduce capacity pressures and inflation.
Internationally, while there are differences across regions, economic growth remains below trend and is expected to stay subdued.
However, most major central banks are cautious about easing monetary policy, given the ongoing risk of persistent inflation.
Economic growth in New Zealand is weak. While some near-term price pressures remain, the Committee is confident that maintaining the OCR at a restrictive level for a sustained period will return consumer price inflation to within the 1 to 3 per cent target range this calendar year.
What is the Official Cash Rate?
The OCR is the interest rate set by the Reserve Bank to influence economic activity and inflation. It’s essentially the rate at which banks borrow money from the RBNZ overnight.
The OCR acts as a benchmark for interest rates throughout New Zealand. It influences the interest rates that commercial banks charge each other for overnight loans.
When the OCR goes up, it becomes more expensive for banks to borrow from the RBNZ. This often leads commercial banks to raise their interest rates on loans, including mortgages and business loans. Conversely, a lower OCR makes borrowing cheaper.
The OCR can also influence interest rates on savings accounts and term deposits. Generally, when the OCR rises, so do savings rates, although the increase might not be as significant as the rise in borrowing costs.
Overall, the RBNZ uses the OCR as a tool to manage inflation and promote economic stability. By adjusting the OCR, they can influence how much people and businesses borrow and spend, which can ultimately impact inflation and economic growth.
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