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Implementation

The Official Cash Rate (OCR) is the interest rate set by the RBNZ to meet the inflation target specified in the PTA. The OCR, the deposit rate the RBNZ pays on settlement account balances, influences the price of borrowing money in New Zealand and provides the RBNZ with a means of influencing the level of economic activity and inflation.

The OCR is reviewed seven times a year by the Bank. The Bank's Monetary Policy Statements are issued at the same time as the OCR on four of these occasions.

The RBNZ sets no limit on the amount of cash it will borrow or lend at rates related to the OCR. The Bank stands ready to lend cash overnight at 50 basis points above the OCR when secured over acceptable collateral in its overnight reverse repurchase facility. Overnight balances in exchange settlement accounts are remunerated at the OCR up to pre-determined levels (tiers) for individual account holders. Balances held in excess of these tiers are remunerated at the OCR less 100 basis points.

The Bank publishes an assessment of economic conditions at quarterly intervals in its Monetary Policy Statements. The Statements contain projections that incorporate a forward path for interest rates that is consistent with achieving the inflation target. These projections are highly conditional, being based on a range of technical assumptions, but they serve to provide an indication of the Bank's current thinking on the policy outlook.

After a prolonged period of very low policy interest rates, the RBNZ raised the OCR from 2.50% to 3.50% during 2014. While domestic economic conditions have been relatively robust over the intervening period, inflation has remained low owing to falling import prices, strong growth in the economy's supply potential and weaker global economic growth. From June 2015 the OCR has been lowered in four steps back to 2.50%.

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