On average, the difference between the two has been 2.5% over the last 15 years.
Put simply, if the OCR is 1%, you’d expect the 1-year interest rate to be about 3.5% (+ or - half a percent).
That’s where we are sitting now, with 1-year interest rates sitting between 3.79% – 3.99% depending on which lender you talk to.
What does that mean for future interest rates?
The Reserve Bank has said that the ‘neutral’ OCR is 2%.
That means that if they're not responding to an economic event, that's what the OCR would likely be.
So the long term 1-year rate is likely to be around 4.5%. Maybe a little higher, maybe a little lower.
While these are higher than we have today, it’s important to remember these are historically very, very low. Just look how the 2 year rate has fallen over time 👇