Good news for borrowers and bad for savers as OCR drops to a new record low

The Reserve Bank has today cut the official cash rate by 0.5 percentage points to one per cent - a new record low.

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Business expert Bernard Hickey gives his thoughts. Source: Seven Sharp

Economists had predicted today's drop, although most predicted a fall of .25 per cent.

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New Zealand’s central bank has knocked 0.5 per cent from the previous rate of 1.5 per cent. Source: 1 NEWS

It could mean lower interest rates for borrowers - but also a reduction in savings account and term deposit offers from banks.

The rate was cut by 0.25 percentage points in May, but was left unchanged in June, and economists from the major banks are predicting further cuts this year.

"The Monetary Policy Committee agreed that a lower OCR is necessary to continue to meet its employment and inflation objectives," the bank said in a statement. 

Last week, business commentator Bernard Hickey told TVNZ 1's Seven Sharp programme that the OCR could tumble to near zero by the end of next year.

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Retail banks have already started cutting interest rates on home loans after the surprise move from the Reserve Bank today. Source: 1 NEWS

"And that will mean that mortgage rates, particularly fixed mortgage rates, for one-, two-year rates, are likely to drop closer to the three per cent mark," Mr Hickey said.

He said that for most people, a fixed-term mortgage is still the cheapest deal.

"The banks do their biggest discounts for people who are fixing from anywhere from one to two years.

"[Floating] is useful for some people, though, who perhaps are using their mortgage a bit like their revolving credit.

"Maybe they've got a business that they operate as well, or perhaps they're planning on winning Lotto, or perhaps Auntie Mavis is about to topple over.

"Sometimes it's useful to be able to pay back.

"But for most people who just want the cheapest deal, then fixing one to two years is cheapest at the moment."