Every couple of months, politicians, businesses, home owners and media all go into a frenzy as the Reserve Bank delivers its latest update of the Official Cash Rate (OCR).
But are they the only ones who should care?
And more importantly, what actually *is* the OCR?
Today, the Reserve Bank announced the OCR has dropped by 50 basis points, to 4.25% - easing pressure with inflation getting under control. Usually, these announcements are followed by a bunch of economists saying things that make many people's eyes glaze over.
As a journalist, I pay attention - it’s my job. But as a 21-year-old, it leaves me wondering… why should I care, personally?
I asked a mortgage broker to help break it down for me, and they put it in simple terms: It either steals my money, or allows me to keep more.
The Reserve Bank lends money to banks, like ANZ or Westpac for example. The OCR decides how much they will have to pay back.
So, the higher the OCR, the more banks charge businesses to cover the cost and make some on top.
Those businesses then charge more to consumers to cover their own costs, and of course, a bit extra for profit.
All of that gets passed down to me, standing in line for my coffee and pie.
Everyone has to make money in the chain, it’s just one passing higher costs onto the next to make a profit.
If the Official Cash Rate is high - that means supermarkets are paying more to the banks who pay more to the Reserve Bank, and that could mean I’m forking out more for my ‘it’s payday tomorrow so I’m living off of bread’ loaf.
The OCR sounds bloody boring, but it’s not just something your uncle starts an argument about at family dinner.
It impacts virtually everything you buy.
Think about who the product has to pass through, and what costs they had to cover because of the official cash rate.
Then maybe you might find the headline a little less boring.
