The Positive News Kiwi SMEs Need To Hear

New Zealand SMEs have been given a sign the economy may be finally turning a corner, as the Reserve Bank once again cut interest rates and forecast a boost in consumer spending.

The Reserve Bank reduced the official cash rate (OCR) by a quarter of a per cent to 2.25 per cent, the lowest since May 2022. The RBNZ has slashed 3.25 per cent from the cash rate since July last year in a bid to stimulate the economy while keeping inflation under control.

The Bank’s Monetary Policy Statement declared: “Economic indicators are recovering, and economic activity is expected to strengthen through 2026.” 

Says Employment Hero CEO Ben Thompson:“A rate cut gives New Zealanders relief, but it’s catch-up, not getting ahead. For small businesses, this move isn’t a windfall, it simply restores some of the ground workers have already lost.”

Economic Situation Now

The Reserve Bank’s decision was seen as a sign of confidence that wages were no longer driving inflation, as reflected in Employment Hero’s October jobs data.

“Inflationary pressure from the labour market hasn’t just paused, it has reversed,” says Ben Thompson. “While median wages are still up 3.0% year-on-year, the real story is in the immediate trend: a 1.4% drop quarter-on-quarter and a further 0.1% slide in October. Hours worked are down 0.6% year-on-year, and even young workers, the group that drove the strongest growth last year, are now seeing their hours cut.” 

Thompson pointed to a median hourly wage of $35.10. ”The quarter-on-quarter contraction suggests businesses are rapidly reducing variable costs.”

What The Interest Rate Means for SMEs

The interest rate cut is expected to ease pressure on SMEs, as lower borrowing costs and improved credit conditions make it easier to manage cash flow, roll over debt and invest in stock or equipment.

Experts said the cut could lead to a lower New Zealand dollar. While this would make imported parts more expensive, export sectors like agriculture, horticulture and food manufacturing would become more competitive internationally – helping margins and improving sales prospects. Tourism and hospitality could see gradual improvement as international visitor numbers rise. 

Lower mortgage bills could also give customers more money to spend in local businesses. “A reduction in the [official cash rate] would help to underpin consumer and business confidence and lean against the risk that the economy recovers more slowly than needed to meet the inflation objective,” the Reserve Bank stated.

Where Does The Economy Go From Here?

Finance Minister Nicola Willis welcomed the RBNZ’s outlook. “It is clear previous reductions in the [cash rate] are flowing through into stronger economic activity. Its forecasts support the widespread consensus that the economy is strengthening.”

The recent BDO Māori Business Sector Report also showed optimism, with 64% of surveyed Māori business leaders reporting positive business performance, up from 48% in 2024. Many based their confidence on strong performance in primary industries.

The pace of recovery is impossible to predict, the RBNZ Governor saying only that future interest rate moves would be based on the medium-term inflation outlook and broader economic data.Says Ben Thompson: “The opportunity now is for SMEs to use this breathing room to support their teams heading into Christmas,, because many workers are still under real financial pressure.”