What the OCR Cut Means for Small Businesses
- Nairn Fisher
- 21 hours ago
- 2 min read
On 20 August 2025, the Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) by 25 basis points, bringing it down from 3.25% to 3% - a three-year low.
Why now?
Inflation: Consumer Price Index (CPI) inflation is hovering near the top of the 1–3% range set by the RBNZ’s mandate. With encouraging signs that inflation pressures are easing, the bank sees scope to ease policy.
Economic slowdown: Economic activity has stalled in Q2. Pressure remains from soft consumer and business spending, inflation in essentials, job losses, and weakening property prices.
Cautious optimism: While uncertainty persists—especially around international developments like tariffs—the RBNZ analysts believe that rate cuts are helping and could continue to support the recovery.
A split vote of 4-2 among Monetary Policy Committee members resulted in the 25bps cut versus a larger 50bps move.
What’s ahead?
The RBNZ signalled openness to further cuts, depending on how the economy performs—and inflation evolves.
According to economists and market watchers, another cut to 2.75% early next year is possible, with some suggesting a path down to 2.50% by 2026.
The NZIER’s Shadow Board also recommended this modest August cut to 3%, noting lingering slack in activity and the job market.
Why It Matters for Small Businesses
1. Cheaper borrowing
Lower OCR generally translates to lower interest rates on loans. If your firm is considering working capital funding, equipment leases, or expansion loans, now is a more favourable moment to consider those investments.
2. Mortgage relief for owners
For any business owners with spot-rate mortgages, the RBNZ estimates savings of about NZD 330 per fortnight for a $500,000 25-year floating loan compared to a year ago. That’s a significant boost to cash flow.
3. Stimulus for demand
Lower rates are designed to encourage spending. Reduced repayment burdens can free up funds for hiring, stock purchases, or marketing—helping to counter cautious consumer or business sentiment.
4. Planning matters more than ever
That said, the RBNZ is data-dependent. If inflation picks up or recovery staggers, future cuts may stall. Ensure your plans factor in both potential interest relief and the risk of rates staying flat.
5. Strategic timing
If you were delaying borrowing or deferred projects due to high rates, now could be the time to revisit. But balance that with a steady pace—especially if you’re unsure of the economy’s next steps.
The RBNZ’s OCR cut to 3% is a clear signal of support for the economy. For small businesses, this translates into better borrowing conditions and more breathing room for budgets and expansions. Watching what happens with inflation, demand, and jobs over the next few months will be key to making smart moves.
