Reserve Bank's anti-inflation weapon doesn't rate

Finance Minister Michael Cullen says the Reserve Bank's anti-inflation weapon, the official cash rate (OCR), is "not proving terribly effective".

Cullen told Parliament's finance and expenditure committee yesterday the OCR was becoming less effective because people were reacting to it intelligently.

Many borrowers have switched to fixed-rate home loans, rather than floating mortgages which usually change immediately when the Reserve Bank alters interest rates.

The bank says monetary policy still works, via the exchange rate, business borrowing, the 25 per cent of mortgage debt still on floating rates, and - eventually - when fixed-rate loans are refinanced.