OCR at a record low!

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3 letters: O, C & R!

Do you know what this means and the possible significance to you?

OCR stands for Official Cash Rate and this is reviewed by the Reserve Bank 8 times a year, the last time was yesterday and it dropped 25 points to 2 percent - a record low with talks that it could go even lower in the next few months.

At this stage, some retail banks have only passed on 5-10 of the basis points, which means if you have a variable interest rate of 5.69 (aka floating interest rate), it would now drop to 5.59 – 5.64. Not much but hey every bit helps right? Unless you are a customer of the one bank that has passed on 20 of the 25 basis points – that helps just a wee bit more!

The OCR was introduced by the Reserve Bank in March 1999 at 4.50 percent for the purpose of controlling inflation. By setting (and reviewing) the OCR, the Reserve Bank is able to influence short and long term interest rates (by making mortgage payments more or less expensive) as well as the foreign exchange rate. 

Since 1999, there has been a lot of movement with it increasing to 8.25 percent in July 2007 and staying there for almost a year! For it to be at 2.0 percent in August 2016 is pretty amazing but where there is a reduction there is usually an increase somewhere else…