What does a cut to the Official Cash Rate mean for your business?
On 20 August 2025, the Monetary Policy Committee reduced the Official Cash Rate (OCR) by 25 basis points, bringing it down to 3.0%.
The move is designed to help ease inflation pressures in Aotearoa. But what exactly is the OCR, and—more importantly—what does this drop mean for your business? Let’s break it down.
What’s the Official Cash Rate?
The OCR is the interest rate set by the Reserve Bank of New Zealand (RBNZ).
It’s essentially the rate that NZ banks pay when they borrow from the Reserve Bank. This has a flow-on effect to the interest rates charged on loans and mortgages. So when the OCR moves, it influences the cost of borrowing across the economy.
Potential benefits
For small businesses, a lower OCR can create opportunities:
Cheaper borrowing – Loan interest rates generally reduce, making it easier (and cheaper) to fund new equipment, cover working capital, or back your growth plans.
Room to invest – With loan repayments more manageable, you might decide to expand, innovate, or hire sooner than planned.
Better cashflow – Lower repayments mean more cash freed up in your business. That extra breathing space can help you handle rising costs or build a financial buffer.
Confident customers – A lower OCR can encourage households to spend more. If you sell directly to consumers, this can translate into stronger sales.
Potential drawbacks
Of course, there are things to keep in mind:
Slower economic recovery – While the OCR is meant to stimulate the economy, the benefits aren’t always immediate. Sales could remain flat in the short term.
Inflationary risk – cuts to the OCR could lead to future inflation spikes. Lower interest rates lead to cheaper borrowing and more spending. As prices and spending rise, so will the rate of inflation. Potentially, this could increase operating costs for your businesses.
Banks don’t always play ball – the high street banks won’t always pass on the full OCR reduction to borrowers. It's important for you to shop around and compare interest rates between business banks, to ensure you're getting the best deal.
What this means for your business
The impact of the OCR change really depends on your industry, how much you rely on borrowed funds, and how exposed you are to consumer spending.
There’s also talk of another possible cut in October, given the global economic uncertainty.
That means now is a good time to step back and consider:
Are your current loan arrangements still the best fit?
Could refinancing free up cash for growth?
How should you adjust your pricing to protect margins if costs rise?
Do you have the right plan in place to take advantage of opportunities while managing risk?
Let’s talk it through
If you’re unsure what this OCR cut means for your business, we’re here to help you:
Review your lending options.
Plan for growth using any cashflow gains.
Stay ahead of inflation and pricing strategies.
Keep on top of upcoming OCR movements.
If you’d like to chat about how this cut could affect your business plans for 2025 and beyond, get in touch—we’d love to talk it through with you.