The official cash rate, also known as the policy rate or benchmark rate, is a key interest rate set by the Reserve Bank of New Zealand (RBNZ). The official cash rate is used as a reference point for setting interest rates on various financial products, including loans and savings accounts.

On the 22^nd of February 2023, the RBNZ lifted the OCR by 50 basis points, to 4.75 per cent, despite billions of dollars’ worth of damage the economy faces following the devastating Cyclone Gabrielle. The RBNZ still projects that the OCR will peak at 5.5 per cent despite the recent weather event in New Zealand. In the November statement, the Monetary Policy Committee agreed that the OCR still needs to increase to ensure inflation returns to within its target range over the medium term.

For commercial investors, the official cash rate is important because it can directly impact the cost of borrowing and the return on investment. If the central bank raises the official cash rate, it becomes more expensive for businesses to borrow money, which can limit investment and slow down economic growth. On the other hand, if the RBNZ lowers the official cash rate, it becomes cheaper for businesses to borrow money, which can stimulate investment and promote economic growth.

Changes in the official cash rate can also affect the yields on bonds and other fixed income securities, which are popular investment options for many commercial investors.

The OCR can have a significant impact on buyers and sellers in commercial property markets. The cost of borrowing is a key factor that affects demand for commercial real estate, and changes in the official cash rate can directly impact the cost of borrowing for property buyers. If the RBNZ raises the official cash rate, it becomes more expensive for buyers to finance their purchases, which can reduce demand for commercial property and put downward pressure on prices. Conversely, if the central bank lowers the official cash rate, it becomes cheaper for buyers to finance their purchases, which can increase demand for commercial property and put upward pressure on prices.

In addition to affecting demand, changes in the official cash rate can also impact the supply of commercial real estate. For example, if the cost of borrowing increases, it becomes more expensive for property owners to finance the construction of new buildings, which can reduce the supply of commercial real estate. This can also put upward pressure on prices for existing properties.

Overall, the official cash rate is an important factor for buyers and sellers in commercial property markets, as it can impact both demand and supply, and therefore have a significant impact on prices. As a result, many real estate investors closely monitor changes in the official cash rate, as it can provide valuable information about the direction of the market and help inform investment decisions.