The Reserve Bank of Australia’s decision to cut the official cash rate to 4.1 per cent was a long-awaited relief to the small-business community.
The rate cut will provide some relief to small businesses by lowering borrowing costs and driving more customer spending activity.
Lower borrowing costs will be particularly important for those SMEs that rely on credit, said Matt Sek, VP, ANZ at Airwallex.
“Lower financing costs will encourage some SMEs to invest in digital transformation, automation, and e-commerce solutions to drive efficiency and scalability,” said Sek. “Businesses may also benefit from potential cost reductions in their supply chains, as suppliers with improved access to capital could pass on savings.”
It’s a step in the right direction, but a small one. Interest rates are still 4 per cent higher than they were three years ago. We also won’t see the impact of this cut for a while yet.
“Rate cuts don’t instantly flow through an economy and one rate cut in isolation is unlikely to be sufficient,” said Xero Economist Louise Southall. “It can take 18 months to two years for the benefits of lower interest rates to fully pass through.”
Additionally, lower inflation doesn’t mean that the cost of living or of doing business will fall – just that these are rising more slowly, said CreditorWatch’s Chief Economist Ivan Calhoun.
“These costs are now just rising at a slower pace and as such will continue to exert pressure on consumers’ budgets and business costs and will be a challenge for the Federal Government at the upcoming election,” he added.
In other words, time – and further cuts – will be needed before small-business owners feel a tangible impact. Experts are predicting more rate cuts later in the year.
“The RBA will continue to cut slowly over the course of 2025 as and when the economic data comes out,” said Dr Isaac Gross, a Lecturer at the Monash Business School Department of Economics. “If they get back to their natural rate, this means three interest rate cuts will be delivered over the coming months.”
