The Reserve Bank Governor Graeme Wheeler said this morning that the Official Cash Rate – the OCR – will remain at 2.5%.
The Governor of the Reserve Bank sets the OCR 8 times a year. Today he said there was still some negative financial news in Europe but positive news coming from the US and Japan. Both the US dollar and the Japanese yen are stronger. As a result, the New Zealand dollar dropped a little. A few weeks ago, NZ$1 was buying close to US86 cents. Today the New Zealand dollar is buying only US79 cents. The Governor of the Reserve Bank believes that the New Zealand dollar is too high and is over-valued. A high dollar makes it difficult for exporters like dairy farmers. It also means that consumers buy more products from overseas and they save less money.
The OCR affects the price that banks pay to borrow money from the Reserve Bank for a short time. This then affects the cost that banks charge to lend money to consumers including money to buy a house. This bank loan for a house is called a mortgage.
The Governor of the Reserve Bank is worried about the high price of houses, especially in Auckland. Low interest rates make it easier for people to borrow money for a house so more people want to buy. This pushes up prices.
Type OCR into the search box to listen to more about the OCR.
Vocabulary
• Governor – number 1 person
• Reserve Bank – government bank
• Over-valued – the value of the dollar is too high
• Consumers – anyone who buys things
• Affects – influences, makes something change
• Borrow – opposite: lend; you pay to borrow, banks charge to lend; loan (n)