Interest Rates, Inflation & Kiwi SMEs – What You Need to Know

Interest rates and inflation are two of the most potent forces shaping New Zealand’s economic environment right now—and small and medium enterprises (SMEs) are feeling the squeeze.

After years of historically low interest rates, the Reserve Bank of New Zealand (RBNZ) has kept the Official Cash Rate (OCR) elevated in a bid to tame stubborn inflation. While inflation is easing, it’s not out of the woods yet—and neither are Kiwi businesses.

Why It Matters for SMEs:

Rising interest rates mean higher borrowing costs. Whether it’s a business loan, overdraft, or asset finance, SMEs are paying more to access capital. This tightens cash flow and makes expansion plans, hiring, or even maintaining current operations more challenging.

At the same time, inflation has driven up input costs—raw materials, logistics, wages—across the board. SMEs often have less pricing elasticity  than larger firms, meaning they can’t always pass on those costs to customers without losing business.

Double Whammy:

• Higher costs to run your business.

• Higher costs to borrow or invest.

Trading margins are under pressure. Consumer demand is soft. And banks are more risk-averse, making funding even harder to secure.

Silver Lining?

A stabilising inflation rate may signal rate cuts in the medium term. Forward-looking SMEs can use this time to streamline operations, strengthen customer relationships, and review funding strategies.

What SMEs Can Do Now:

• Reassess debt exposure. Fix where possible. Are there other potential cash flow sources such as new equity? Unproductive assets that can be sold? 

• Focus on cash flow. Delay big spending, accelerate customer collections. Project forward daily if required. Run 3 scenarios. “Most likely”, “At worst” and “At best”. Ensure your business is viable under the “At worst” scenario.

• Talk to your bank early. Don’t wait until you’re under stress.

• Engage a trusted business advisor with strong commercial acumen and a reputable track record. Yes a good one might be expensive but they will create value over and above cost and may well save your business.

Bottom Line:

This is a time for discipline, not panic. While the current interest rate-inflation paradigm  is challenging, resilient SMEs that adapt quickly will be well-placed when the tide turns.