Why do OCR changes take longer to affect New Zealand than Australia?

At our Tuesday Branch Meeting, we welcomed a guest mortgage broker who explained New Zealand's latest inflation figures, how they influence the Official Cash Rate (OCR), and ultimately mortgage interest rates.

He raised an interesting point of difference between New Zealand and Australia...

New Zealand
Around 88% of residential mortgages are on fixed rates, with only 12% on floating rates. This means OCR changes take time to filter through the economy, as borrowers only feel the impact when their fixed term expires and they refix.

Australia
Around 80% of mortgages are on variable rates, so changes in the Reserve Bank of Australia's cash rate are reflected in household repayments almost immediately. That has a much faster impact on spending—and therefore inflation.

This difference in mortgage structure helps explain why interest rate changes generally take longer to influence the New Zealand economy than they do in Australia.

Sources: Reserve Bank of New Zealand (S33 Residential Mortgage Repricing Statistics), Reserve Bank of Australia, and IMF analysis of mortgage market structures.