OCR (Official Cash Rate)

How it works

The Monetary Policy Committee makes seven OCR decisions a year, four of which come with a full Monetary Policy Statement and three as shorter reviews. The Reserve Bank's job is to keep inflation near 2%, and the OCR is its main lever.

When inflation runs hot, raising the OCR makes borrowing more expensive and saving more rewarding, which cools spending. When the economy needs support, cutting it does the reverse. The effect is deliberately blunt and deliberately slow, and the Reserve Bank has been explicit that its July 2026 increase was aimed at returning inflation to 2%.

For households, the OCR is felt in three places: the rate on a mortgage when it comes off a fixed term, the rate paid on savings and term deposits, and the rate on any floating debt.

A worked example

An illustration of scale, not a forecast, and not a prediction about where rates are going.

Take a $500,000 mortgage on a 30-year term. At 5.5% the repayment is roughly $2,839 a month. At 6.0% it is roughly $2,998. That half a percentage point is about $159 a month, or a bit over $1,900 a year, on one loan.

That is why a single OCR decision gets front-page treatment in a country where most household wealth sits in housing. It is also why the effect arrives unevenly. Someone refixing next month feels it immediately, someone eighteen months into a two-year fix feels nothing yet.

What people commonly get wrong

"The OCR is the mortgage rate." It is not. Banks set their own rates based on the OCR plus their funding costs, competition and margin. A 25 basis point OCR cut does not automatically become a 25 basis point mortgage cut, and fixed rates often move before a decision because markets have already priced it in.

"My fixed rate will change." It will not, until your fixed term ends. The OCR matters to fixed-rate borrowers as a forecast, not as a bill. The date that matters is your refix date.

"Savers win when rates rise." Partly. Deposit rates do follow the OCR upward, but usually more slowly and less completely than lending rates. And interest earned is taxed, so the return that reaches you is smaller than the advertised rate.

"There's nothing I can do about it." Not quite. What is inside your control is knowing your refix date, knowing what your repayment would be at a rate one or two percentage points higher, and having that difference already accounted for rather than discovered.

Where it meets your weekly budget

For most households the OCR only becomes real twice: on refix day, and when a floating rate moves.

The useful preparation is simple and unglamorous. Find out when your fixed term ends. Work out what the repayment would be at a higher rate. If the difference is meaningful, start setting it aside now, in the same way you would for rego or insurance, so the new payment is a number you have already been living with rather than a step change.

That habit is really just a sinking fund pointed at a future repayment. The day-to-day version of the same question, what is genuinely spendable this week once every committed payment is accounted for, is what Safe to Spend answers.

This is general information about how the OCR works, not financial advice about your mortgage.