The Official Cash Rate is the interest rate set by the Reserve Bank of New Zealand. Banks’ savings and lending rates follow it, so it’s how the Reserve Bank speeds up or slows down spending.

What is the Reserve Bank’s inflation target?

To keep inflation between 1% and 3% a year over the medium term, aiming for around 2%.

How does an OCR change affect my mortgage?

A floating rate usually changes within weeks. A fixed rate doesn’t change until your fixed term ends, so the change reaches you when you refix.

Is my term deposit beating inflation?

Check the rate after tax. At 4% with 30% resident withholding tax, you keep 2.8%, which is less than 3% inflation, so your money buys slightly less each year.

Should I fix or float my mortgage?

Fixing gives you certainty about your repayments for the term. Floating lets you make extra repayments or switch at any time, but the rate can rise and is often higher than fixed rates.

Inflation and interest rates in New Zealand, explained

What is inflation?

Inflation is the rise in the prices of everyday things over time. Stats NZ measures it every three months with the Consumers Price Index (CPI), the cost of a typical basket of goods and services, from food and petrol to rent and power.

If prices rise faster than your pay or your savings, you’re getting poorer without noticing.

Try it: what inflation does to your moneyMove the sliders to change the inflation rate and the number of years.

Inflation a year3%

Years10

$100 kept as cash would buy

$74

of today’s shopping

Something costing $100 today

$134

in 10 years

At 3% a year, prices double about every 23 years.

Why the Reserve Bank changes the OCR

The Reserve Bank of New Zealand sets the Official Cash Rate, which banks’ other rates follow.

When inflation is too high, it raises the OCR. Borrowing costs more, people spend less, and price rises slow.
When the economy is weak, it cuts the OCR to encourage borrowing and spending.

What it means for you

What you have	When the OCR rises
Savings and term deposits	Usually pay more
Floating-rate mortgage	Repayments go up, usually within weeks
Fixed-rate mortgage	No change until you refix
Credit card	Usually little change: rates are already high
New loan	Costs more to take out

Fixed mortgage rates follow what markets expect the OCR to do, so they can move before the Reserve Bank does. When your fixed term ends, compare your bank’s rates with others before you refix. Many people split their loan across two or three fixed terms, so not all of it refixes at once.

Beating inflation

What matters is your real return: what your money earns after tax and inflation. Your bank takes resident withholding tax from the interest first, so on 30% tax, a term deposit paying 4% leaves you 2.8%. With inflation at 3%, your money buys slightly less each year.

Interest on $10,000 at 4% for a year $400 of interest before tax: what you keep at each tax rate

RWT at 10.5% (income up to $15,600) 3.58% after tax: You keep $358
RWT at 17.5% ($15,601 to $53,500) 3.3% after tax: You keep $330
RWT at 30% ($53,501 to $78,100) 2.8% after tax: You keep $280
RWT at 33% ($78,101 to $180,000) 2.68% after tax: You keep $268
RWT at 39% (over $180,000) 2.44% after tax: You keep $244
PIE fund at 28% (top PIR) 2.88% after tax: You keep $288

With prices rising 3% a year, an after-tax return below 3% buys less each year. Here, that's 4 of the 6 rates.

Check your RWT rate. If it’s higher than your income needs, you’re losing more to tax than you should.
Consider a PIE savings account or term deposit if you’re on 30% or more: tax is capped at 28%.
Keep your emergency fund in savings anyway. Its job is to be there when you need it, not to grow.
For goals more than five years away, investing, including KiwiSaver, has historically beaten inflation by more, with ups and downs. See investing basics.

See what your savings could earn with the savings interest calculator.