OCR (Official Cash Rate in New Zealand), it is also known as Target Cash Rate in Australia or Federal Reserve Interest rate in the US. It has multiple names, but usually has one purpose, it is used as a tool to adjust a country’s macroeconomics.
The most common approach is that when the inflation rate is high, the central bank will increase the interest rate to discourage people to spend to lower the inflation rate, if the inflation rate is low, the central bank will decrease the interest rate to encourage people to spend to increase the inflation rate.
There are two concepts here before continuing,
- All credit today is future debt. Credit is just you borrowing money from the future and paying it back in the future.
- For most of the countries that the target inflation rate is about 2%, none wants to have a 0% (or negative) inflation because of fear of deflation; none wants a 10+% inflation either, the price stability will lose control.
Inflation and Interest Rate
The Reserve Bank of New Zealand has a target inflation rate of 1% to 3% (aiming for 2%), and in New Zealand, the OCR will be reviewed seven times a year. The last time, in October 2025, the OCR was 2.5%. The inflation rate (CPI) will be published quarterly by Stats NZ; the current inflation rate, by the end of September, is 3%. The next OCR announcement will be on 26 Nov, in about three and half weeks time.
None of us can predict the future, however, for inflation and OCR, there are some clear patterns, as the Reserve Bank wanted to use the OCR as a tool for the country’s economy, the chart below is the last 20 years quarterly OCR and Inflation rate in NZ.
We can see some clear patterns in the chart.
- If the inflation rate is 2.25% or lower, the Reserve Bank are keen on not increasing OCR.
- If there is a more than 12 months long, continually increasing inflation rate, OCR will follow the same trend until it peaks, and this works when inflation rate decreasing too.
The chart above is that we use. Inflation Rate minus OCR to get a difference. In history, between these two rates, we can find that, of these 20 years, OCR is 0.81% higher than Inflation Rate on average. Only 31% of records that Inflation Rate is higher or equal to OCR; the rest, 69%, OCR is higher.
What about now?
The inflation rate has decreased since the end of 2022, reaching its lowest point at the end of 2024 in last 4 years. Since then, the inflation rate has continued to increase, reaching 3% today. The OCR began decreasing at the end of 2024 and continues to do so. The latest OCR is 2.25% (it was 3% when the Inflation Rate was published by Stats NZ).
In sum, it is still hard to tell whether the Reserve Bank will increase or decrease the OCR for the next OCR announcement. However, based on statistical analysis, we can try to make a simple prediction for 2026 It is most likely that the OCR will increase at some point in 2026, unless inflation remains below 3%, which may not be the case due to the current relatively low OCR.