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It happened. Again.
Yesterday, the Reserve Bank increased the OCR. While an increase was expected.
The size of the jump surprised economists.
It was an 0.5% increase rather than the projected 0.25%.
National’s Nicola Willis called it a ‘punch in the guts’ for Kiwis with mortgages.
But is it the knockout blow to interest rates you might think? Here’s why interest rates won’t increase (at least not by that much).
#1 – The jump is to stop banks reducing their interest rates
Many people think a higher OCR = higher interest rates. That’s not always how it works.
OCR hike ≠ interest rate hike
6 weeks ago, the Reserve Bank lifted the OCR by 0.5%. But since that increase, interest rates have come down:
– ASB’s 1-year rate fell by 0.2%
– BNZ has been offering cracker deals at 4.99%, and
– ANZ has been discounting their interest rates for some investors we’re working with
The purpose of the OCR increase is to stop that from happening. The Reserve Bank wants banks to:
1. Keep mortgage interest rates where they are
2. Increase their deposit rates
Take a look at the Reserve Bank’s own press statement –