On 20 August 2025, the Monetary Policy Committee agreed to reduce the Official Cash Rate (OCR) by 25 basis points to 3.0%. This cut to the official Reserve Bank of New Zealand (RBNZ) rate is aimed at easing the pressures of inflation in Aotearoa.

But what exactly is the OCR? And how will a drop to 3.0% affect your small business?

What’s the Official Cash Rate?

The Official Cash Rate (OCR) is the interest rate set by the Reserve Bank of New Zealand.

It’s one of the RBNZ’s key economic tools, influencing the overall level of interest rates across the economy. The OCR sets the rate of interest that New Zealand banks pay when they borrow money from the Reserve Bank. In turn, this directly affects the interest rates that banks charge on loans to customers—including small business owners.

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 what it could mean for you:

Potential Benefits

Reduced borrowing costs – A lower OCR typically means reduced interest rates on business loans and mortgages. This could open the door to more affordable financing for growth initiatives, new equipment, or covering operational costs.

Increased investment opportunities – With cheaper borrowing available, it’s a good time to revisit your business finance strategy. Lower repayments make it easier to invest in expansion, innovation, or hiring new staff—all key drivers of growth in 2025.

Improved cashflow – Smaller loan repayments free up cash for reinvestment, covering rising operating expenses, or building a financial buffer to weather uncertainty.

Boosted consumer confidence – A lower OCR can sometimes translate into higher consumer spending, as households feel they have more money in their pockets. For B2C businesses, this can mean stronger sales and increased revenue.

Potential Drawbacks

Slower economic recovery – While designed to stimulate the economy, an OCR cut doesn’t always bring immediate results. In some cases, the benefits only show in the long term, with slower short-term growth or reduced sales.

Inflationary risks – Lower borrowing costs encourage spending, which can push up prices. If inflation accelerates, your business may face rising costs for supplies, wages, or overheads.

Uncertain pass-through from banks – Banks don’t always pass on the full OCR reduction to their customers. That’s why it’s important to compare offers from different lenders to ensure you’re getting the best possible deal.

What Should Business Owners Do Next?

At Traktion, we know that changes to the OCR can feel confusing — and the impact isn’t the same for every business. Here are some proactive steps to consider right now:

Check your loan agreements – Keep an eye on any updates from your bank. If lending rates move, it may be worth negotiating better terms or exploring refinancing options.

Refresh your cash flow forecasts – Work with your accountant to adjust your forecasts. Lower interest rates can shift both your expenses and your revenue outlook, so it’s important to update the numbers you rely on.

Refocus your business strategy – Think about where an injection of investment could drive meaningful growth. That might mean putting more into marketing, upgrading your systems, or developing your team.

Keep an eye on inflation – While the OCR cut is designed to support the economy, it can also feed into higher costs over time. Watch for changes in your operating expenses, especially around imports and wages.

How Traktion Can Help

Every business will feel the effects of this OCR cut differently. Our team can help you:

  • Review loan options and refinancing opportunities

  • Rebuild cash flow forecasts that reflect the new lending environment

  • Identify smart areas for reinvestment and growth

  • Keep you updated on OCR changes and the wider NZ economy

Talk to us today about how the latest OCR cut could shape your plans for 2025 and beyond.

 

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