What does a cut to the official Cash Rate mean for you
29 May 2025
On 28 May 2025, the Monetary Policy Committee agreed to reduce the Official Cash Rate (OCR) by another 25 basis points to 3.25%. This planned cut to the official Reserve Bank of New Zealand (RBNZ) rate is aimed at stabilising economic conditions in Aotearoa and for inflation to stay within their target of 1 - 3%.
But how will a drop to a 3.25% rate affect your small business?
The key business pros and cons of the OCR cut
A cut to the OCR has both potential benefits and drawbacks for New Zealand-based small business owners. Here's our breakdown of the possible implications for your business:
Potential benefits
- Reduced borrowing costs – a cut to the OCR means lower interest rates on loans, including business loans and mortgages. This could mean easier, and potentially cheaper, access to capital for your small business, helping you finance your planned growth initiatives, equipment purchases or operational costs.
- Increased investment – with borrowing costs now dropping, it’s a good time to look for business funding and finance. With repayments lower, you could look to invest in expansion, innovation or hiring new employees (all key elements of growth for 2025).
- Improved cashflow – with your loan repayments now smaller and more manageable, you free up cash for the business. This liquid cash can be used to reinvest in the business, cover your increasing operating expenses or build a financial buffer.
- Boosted consumer confidence – a lower OCR can sometimes lead to higher consumer spending, with customers feeling they have more cash in their pocket. If you’re a B2C business, this can lead to boosted sales and increased revenue.
Potential drawbacks
- Slower economic recovery – the OCR is often used to stimulate economic activity, but, paradoxically, in certain circumstances, it can actually slow down recovery. A cut could benefit businesses in the long run, but a slower economic recovery may mean lower sales in the short to medium 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.
- Uncertain impact on interest rates – 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.
Talk to us about the impact of the OCR for you business
The impact of the OCR cut on your business will vary, depending on factors like the industry you trade in, access to capital, and your reliance on consumer spending.
A further cut is possible in May, especially given recent global economic instability.
Talk to our team about how the OCR cut may affect your business plans for 2025 and beyond.
We can help you:
- Review your loan options and whether refinancing makes sense.
- Plan for growth and extra investment, using the potential cashflow boost
- Keep an eye on inflation rates and how to adjust your pricing
- Keep up to date with the OCR and the major NZ economic situation.
Here’s a quickfire summary of Budget 2025. The Budget has increased spending in health, education, defence, and law and order, as well as delivering targeted support for business investment and infrastructure growth. Investment Boost The new "Investment Boost" tax incentive aims to accelerate business capital spending. From 22 May 2025, businesses can immediately deduct 20% of the cost of eligible new plant, equipment, technology, or work vehicles in the year of purchase—on top of standard depreciation rules. The scheme also applies to new commercial buildings, which are otherwise ineligible for depreciation. There is no cap on the value of assets claimed. KiwiSaver Significant changes to KiwiSaver take effect from 1 July 2025. Government contributions will halve to 25 cents per dollar (capped at NZ$260.72 annually) and will be removed altogether for individuals earning over NZ$180,000. Eligibility is being extended to 16- and 17-year-olds, with compulsory employer contributions starting 1 April 2026. The minimum contribution rate for both employers and employees will increase to 3.5% in April 2026 and to 4% in April 2028. However, members may apply for a 12-month “savings rate reduction” to remain at 3%. Health A $7 billion increase in health funding will support infrastructure upgrades, additional capacity for elective surgeries and outpatient services, enhanced dementia and aged care, and longer prescriptions (up to 12 months) for those with chronic conditions. Education Education receives a major funding boost to improve support for students with additional learning needs. This includes hiring more specialist staff and teacher aides, building new classrooms for children with disabilities, investing in early numeracy interventions and improving school attendance by tackling truancy. Defence Defence spending rises to fund modernisation across land, sea, air, and space. The Budget includes funding for new maritime helicopters, two new aircraft to replace an ageing fleet, and investment in cyber and space capabilities to improve NZDF readiness. Infrastructure A significant increase in capital investment will support upgrades across multiple sectors. Key projects include improvements to the national rail network, new school facilities, an expansion of Christchurch Men’s Prison with 240 high-security beds, and a new housing fund to build more social and affordable rental homes.
Mental wellbeing is a valuable business asset. Employers who prioritise it have better engagement, reduced absenteeism and higher productivity. New tools make it easier to incorporate wellbeing principles into your health and safety plan. Heard of The Five Ways to Wellbeing? They are simple and proven actions you can introduce in your workplace to help staff find balance, build resilience, and boost their mental health and wellbeing: Connect: feeling close to and valued by others boosts wellbeing. Take a moment every day to connect with colleagues. Be Active: being physically active improves physical health and can improve mood and wellbeing, decreasing stress, depression, and anxiety. Go for a walk or run. Step outside. Take Notice: pay more attention to the present moment, thoughts, feelings, and the world around. Keep Learning: be curious. Try something new. Take on a new responsibility. Give: acts of kindness, small or large, can increase happiness and life satisfaction. Do something nice for a teammate. Thank someone. Volunteer. It sounds simple but it’s often the simple things that fall through the cracks. Workplaces have a legal responsibility to manage risks to mental health and wellbeing just like they do any other health and safety risk. Employers are recognising that wellbeing is an asset. An Australian study found employers who take effective action to create mentally healthy workplaces can expect a return on investment of $2.30 for every dollar spent. Workplaces that prioritise mental health have better engagement, reduced absenteeism, and higher productivity, while people have greater morale and higher job satisfaction. Have you incorporated measures to support wellbeing into your business’ health and safety plan? A toolkit that makes it easy to support your people to build the Five Ways into their day-to-day lives can be found on the Mental Health Foundation’s website .
Ownership models for farming businesses have changed over time. Family ownership is the traditional model but, given the amount of capital tied up in farming businesses today, family ownership may not be the main model going forward. Various factors shape this: Some business owners want to plan for their own retirement while wanting to provide for the business to continue. Other farm owners want to grow their business and see that an investment in a larger property is necessary to move forward. Equity partnerships are an option which can work well, particularly if you want to grow your business. What is an equity partnership? Individuals pool their capital with others in order to gain an ownership interest in a larger property. Quite often there will also be a component of bank debt as the partners borrow funds to purchase the farm. What are the benefits for equity partners? pool capital share the risk leverage specialist skills and/or capital assets improve business performance with efficiencies of scale Equity Partnerships can be a good way for: managers and sharemilkers to progress to farm ownership farmers to retire but remain involved in the industry and see their business continuing with a sound succession plan in place. How would we go about it? Often individuals who already know each other agree to set up an equity partnership. Or you can be put in touch with other people who might be interested in this kind of investment opportunity. How would it work? The preferred ownership structure for an equity partnership is usually a company. The company has several shareholders, with shareholding based on the amount of share capital that individuals contribute to the partnership. One shareholder generally takes the role of farm manager, on salary. Other possible structures include trusts and limited partnerships to establish the joint venture arrangements. It’s important to work through the structuring options to establish what best suits your situation and what you want to achieve. What would we need? A due diligence process is critical, to assess the potential risks and benefits. If you decide that a company structure works best for your purpose, then all shareholders will sign a Shareholders’ Agreement setting out how the venture will work. If you decide on a different ownership structure, then there needs to be equivalent documents such as a Trust Deed or Partnership Agreement. There also needs to be an Individual Employment Contract for the farm manager. If you’re trying to attract investors into a joint venture with you, it’s a good idea to put together an Information Memorandum which makes it clear why your proposed venture stands out. Keep in mind If you would like to explore the possibility of an equity partnership further, give us a call! We’ll meet with you to analyse what would work best for you to achieve your goals, liaise with other specialists on your behalf and prepare the appropriate documentation.
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