5 things you need to know about the Reserve Banks' OCR cut

  • 10/09/2015

By Ranjani Ponnuchetty

All eyes have been on the Reserve Bank today as Governor Graeme Wheeler makes one of the most anticipated official cash rate (OCR) announcements this year.

Banks like BNZ have already advertised a competitive home loan rate, days before the rate cut was announced. But according to the central bank, more interest rate drops are likely in the coming months, so what does this mean?

1. A quarter of a percent drop in the OCR means around a $250 saving per month on your mortgage payments per $100,000 of your loan on a floating rate.

2. The most popular mortgage option at the moment is a two-year fixed mortgage rate as it's been the lowest available option. The proportion of floating rates fell to 26 percent in July, down from a peak of more than 60 percent in April 2012.

3. The central bank is predicting headline inflation which is now at 0.4 percent to reach the target of 1-3 percent by next year. When that happens it's unlikely there'll be more OCR cuts.

4. Yes, there are concerns over the heated housing market, so the OCR as low as 2 percent is unlikely this year. At least until there's evidence new LVR measures for property investors in Auckland is working.

5. This is bad news for those trying to save, with interest rates so low you won't be getting a good return on your investment. Many are putting their money into stocks but with the volatile global markets, it's a high risk option.