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Understanding the OCR Cut and What It Means for Your Small Business

11/02/2025

On 27 November 2024, the Monetary Policy Committee reduced the Official Cash Rate (OCR) by 50 basis points, bringing it down to 4.25%. This adjustment by the Reserve Bank of New Zealand (RBNZ) is aimed at improving economic conditions across Aotearoa throughout the coming year. But, what exactly does this mean for your small business or farm in rural Taranaki?

Additionally, industry experts predict a further 0.5% drop in the OCR this February during the next review in 2025. While this is not guaranteed, it’s important to prepare for all possible outcomes.

Here’s everything you need to know about the OCR, how the recent cut impacts your business, and steps you can take to stay ahead.

What Is the Official Cash Rate?

The Official Cash Rate (OCR) is a key economic tool set by the Reserve Bank of New Zealand. It determines the borrowing rate for New Zealand banks through the Reserve Bank and has a ripple effect on the broader economy.

A lower OCR typically brings down the interest rates charged by banks on loans, mortgages, and other forms of borrowing. For small business owners and farmers, this can directly impact your operational costs, financial flexibility, and long-term plans.

How Does the potential OCR Cut to 3.75% Affect You?

While the new OCR brings potential opportunities, it also comes with some considerations. Here’s a breakdown of the benefits and challenges to help you weigh the impact.

Potential Benefits

Reduced Borrowing Costs

Interest rates for loans and mortgages are likely to decrease, making it easier and potentially cheaper for you to access capital. Whether you’re looking to fund growth initiatives, purchase essential farming equipment, or cover operational expenses, this change can help free up your resources.

Increased Investment Opportunities

With borrowing becoming more affordable, 2025 could be the year to explore business or farm investments. Consider expanding operations, adopting innovative farming techniques, or even hiring new staff to take your business to the next level.

Improved Cashflow

Lower repayment amounts on existing loans mean more liquidity for your business. This additional cash could be reinvested to cover increasing costs, add to financial reserves, or manage fluctuations in operating expenses.

Boosted Consumer Confidence

Lower OCR rates often encourage more consumer spending. For farmers supplying directly to consumers or small businesses serving local communities, this could mean higher demand and greater revenue potential.

Potential Drawbacks

Slower Economic Recovery

While OCR cuts are designed to boost economic activity, the flow-on effects can sometimes take longer to materialize, potentially causing a delayed recovery. This could translate into slower sales growth for rural businesses and a dip in demand over the short to medium term.

Inflation Risks

Reduced interest rates encourage higher borrowing and spending, which can ignite inflationary pressures. Rising costs may impact essentials such as materials, equipment, and farm supplies.

Uncertain Interest Rate Reductions

It’s important to note that banks don’t always pass on the full OCR cut to borrowers. To secure the best deal, you’ll need to compare interest rates and ensure you’re maximizing the benefits available through your chosen lender.

What Could Happen in February 2025?

The next OCR review is set for February 2025, and industry experts believe there’s a high likelihood of a further 0.5% decrease. If this prediction holds true, it could lower the OCR to 3.75%, potentially offering even greater borrowing opportunities for business owners and farmers.

However, nothing is guaranteed. It’s wise to prepare for different scenarios to ensure your operations can adapt to shifts in economic policies.

How to Navigate These Changes

The medium- and long-term impacts of OCR adjustments on your business will vary depending on your access to capital, reliance on consumer spending, and ability to adapt to changing market conditions.

Here are a few practical steps to help you stay ahead of the curve in 2025:

Review Your Loan Options: Revisit your existing loans and evaluate whether refinancing at a lower rate is beneficial for your circumstances.

Plan for Growth: Use any cashflow improvements strategically to fund expansion, upgrades, or innovation in your business or farm.

Stay Inflation-Aware: Monitor inflation rates closely and adjust your pricing or operational strategies accordingly.

Be Prepared for Further OCR Changes: Keep up to date with the RBNZ’s announcements to anticipate the effects of any further changes in February or beyond.

We’re Here to Help

If you’re unsure about how the OCR changes may affect your small business or farming operations, we’re here to help. Our team specializes in rural Taranaki businesses and is here to provide tailored advice that takes your unique needs into account.

Determine whether your current financial setup aligns with the latest interest rate changes.

Assess whether refinancing is a good option to save on borrowing or reduce costs.

Plan for operational growth or investment opportunities based on your business goals.

Understanding the OCR isn’t just about following economic trends—it’s about staying empowered to make the best business decisions for your future. Reach out today and take the first step toward a stronger financial footing in 2025 and beyond.

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