What is the OCR?

(File)
(File)

The official cash rate (OCR) is always big news, but why should you care?

The OCR is the Reserve Bank's interest rate, which determines how much it costs your bank to borrow money. That in turn affects how much the banks charge you.

So why does the Reserve Bank keep changing it?

Think of the economy as a car chugging along smoothly. The Reserve Bank can increase the OCR to put the brakes on if it's going too fast, or cut it to speed it up.

If the OCR is cut, it means more bang for your borrowed buck because you are paying less interest.

Cheap money also means cheaper mortgages, which means you can afford to borrow more and pay more for your house.

But it means less bang for your savings buck because you get less interest.

The higher the OCR, the more money foreign investors will put into NZ dollars.

That makes our dollar worth more against other currencies, which is bad for exporters because it pushes up their prices and they sell less.

But it's good for travellers because a strong dollar buys more duty-free.

It's all a balancing act which happens seven times a year.

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