A negative OCR would mean the Reserve Bank of New Zealand charges retail banks, such as ANZ, to deposit their funds, or excess reserves, with them overnight. By doing this, the central bank is incentivising these banks to lend out more money to their clients, even if it’s at a reduced rate.
The rationale behind negative or ultra-low rates can, to some degree at least, be boiled down to this: cheaper money will lead to increased borrowing, driving spending and investment, which will spur economic growth.
It’s important to remember that if the RBNZ cuts the OCR into negative territory it doesn’t necessarily mean bond yields and bank deposit rates go negative. In fact, as it stands, negative deposit rates are unlikely. Still, you need to be prepared for lower deposit rates and the challenges they bring.