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<\/p>\nOPINION: It affects mortgage rates, rental prices, savings, businesses, the job and the housing market, so yes, the OCR probably affects you, but lowering it isn’t always a silver bullet, writes Frances Cook.<\/p>\n
As you read this, the Reserve Bank is dusting off its decision-making hat for one of the finance announcements we all like to keep an eye on: where the official cash rate (OCR), and interest rates, are heading next. <\/p>\n
It\u2019s the kind of move that ripples through almost every part of our economy. <\/p>\n
It\u2019s not just about mortgage rates, but what you earn on your savings, and how confident people feel about buying a house, even whether businesses hire staff, or start a new project.<\/p>\n
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(Source: istock.com)<\/p>\n
Remember how our unemployment rate has been steadily heading up, and has now hit a five-year high? Yep, the OCR has a big hand to play in that. <\/p>\n
Businesses fund a lot of their work through debt, so if interest rates are high, they often hold off hiring. <\/p>\n
So it\u2019s fair to say, every one of us has a stake in this week\u2019s decision. <\/p>\n
It can also tell us a lot about the health of our economy. Which has been feeling\u2026 not great, lately. <\/p>\n
![\"Financial](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2025\/08\/how-you-can-develop-a-healthy-psychology-around-money-MBQCJ6HZOJBXROXABPWLNLVENA.png\")
<\/p>\n
Financial journalist Frances Cook. (Source: Breakfast)<\/p>\n
The case for cutting<\/p>\n
Certainly the mood seems to be that interest rates need to be cut further. Almost everyone is predicting an OCR cut from 3.25%, to 3.00%. <\/p>\n
Kiwibank\u2019s Sabrina Delgado says, with construction struggling, unemployment on the rise, and house prices sluggish, the signs are clear. <\/p>\n
\u201cAll that weakness in the economy still puts downward pressure on inflation. <\/p>\n
\u201cIn the medium term, so say 12 months from now, we actually see inflation at risk of being below that 2% sweet spot for the Reserve Bank.\u201d<\/p>\n
While the headline number on inflation has ticked up slightly, dig into the numbers, and you can see two totally different things happening. <\/p>\n
Economist Brad Olsen said major banks had already pre-emptively dropped interest rates as “everyone can see the writing on the wall”. (Source: Breakfast)<\/p>\n
The things impacted by a local OCR decision, are looking weak. <\/p>\n
New Zealand business investment is down, reflected in higher unemployment.Locally produced goods aren\u2019t seeing the eye-watering price rises we\u2019ve had in the past.Rent prices are actually falling, for the first time in years.<\/p>\n
But other factors are keeping inflation high, such as higher council rates, price rises on goods impacted by tariffs. Those things won\u2019t budge, not from Reserve Bank activity, anyway. <\/p>\n
Lowering the OCR won\u2019t make your rates bill smaller, or convince global markets to lower the price of beef.<\/p>\n
Why that\u2019s a risk<\/p>\n
The morning’s headlines in 90 seconds, including our first ever espionage trial, the end of an era for Cook Strait crossings, and a surprising survival story. (Source: 1News)<\/p>\n
If you\u2019re not a homeowner feeling the squeeze of high interest rates, you might wonder why you should care if the OCR stays higher. <\/p>\n
After all, it\u2019s meant to drop inflation. So if it keeps taking a stab at the cost of living, surely that\u2019s a good thing? <\/p>\n
But Delgado points out, there\u2019s definitely a case for too much of a good thing. <\/p>\n
There\u2019s a reason why the Reserve Bank is tasked with keeping inflation in that 1-3% range. <\/p>\n
If it drops too far, that\u2019s bad for all of us as well. It can mean the economy slows down in ways that affect wages, investment, and jobs.<\/p>\n
When prices aren\u2019t moving, companies have little incentive to hire or expand. Wage growth can stall. Demand can shrink. <\/p>\n
And if prices start falling (deflation), it\u2019s much harder to get things moving again.<\/p>\n
\u201cCentral bankers will always tell you that they prefer high inflation because it’s actually easier to combat high inflation. You just hike interest rates until they hurt,\u201d Delgado says.<\/p>\n
\u201cWhen you have deflation, it’s a much trickier problem to solve,.\u201d<\/p>\n
So while many are expecting this week\u2019s announcement to see the OCR nudge downwards, Delgado is hoping by the end of the year they\u2019ll have cut further to 2.5%.<\/p>\n
The case for more than one tactic<\/p>\n
Interest rates are a blunt tool, and digging through the numbers for this column, I can\u2019t help but think we need to be getting out some other tools from the toolkit. <\/p>\n
Because while inflation has eased, and (some) parts of the cost–of-living crisis are looking a little better, the pain in the construction sector isn\u2019t good for any of us. <\/p>\n
House prices may be sluggish, but they\u2019re still plenty unaffordable for many first home buyers. <\/p>\n
Looking over the ditch, one of the secrets behind Australia\u2019s wealth is their use of Super (their KiwiSaver) to invest into long-term projects, like infrastructure. <\/p>\n
KiwiSaver could be used similarly, giving a good return to savers, and a boost to our country overall. <\/p>\n
Investing in those long-term projects could bring some much-needed long-term thinking, and stop us from having a construction sector that lurches from boom to bust. <\/p>\n
![\"Just](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2025\/08\/construction-sector-hit-hard-by-downturn-EDFJTVPCZFEGLBWYUFA6IMS5MQ.png\")
<\/p>\n
Just 16% of the construction industry has a positive outlook, as skilled workers increasingly depart for more work overseas.\u00a0 (Source: 1News)<\/p>\n
Not to mention, creating reliable housing supply that eases some of the underlying affordability issues in our property market. <\/p>\n
Interest rates may be the Reserve Bank\u2019s domain, but housing supply is a bigger piece of the affordability puzzle. Without having a proper look at what changes we can make there, we\u2019ll be having the same conversation in another decade.<\/p>\n
As the saying goes, if nothing changes\u2026 nothing changes. <\/p>\n
Interest rates can point us in the right direction. But they can\u2019t build the road to get us there.<\/p>\n
The information in this article is general in nature and should not be read as personal financial advice.<\/p>\n","protected":false},"excerpt":{"rendered":"OPINION: It affects mortgage rates, rental prices, savings, businesses, the job and the housing market, so yes, the…\n","protected":false},"author":2,"featured_media":78083,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,99,164,1721,184],"class_list":["post-78082","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-au","tag-australia","tag-business","tag-economy","tag-opinion","tag-personal-finance"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/78082","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=78082"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/78082\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/78083"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=78082"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=78082"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=78082"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}