‘Billion-dollar blow’: Cash rate hike set to send small businesses scrambling

“A wide range of data over recent months have confirmed that inflationary pressures picked up materially in the second half of 2025,” the RBA said.

“The Board will be attentive to the data and the evolving assessment of the outlook and risks to guide its decisions. In doing so, it will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market.”

“The Board is focused on its mandate to deliver price stability and full employment and will do what it considers necessary to achieve that outcome.”

On the rate hike, both accounting bodies, Chartered Accountants ANZ and CPA Australia, expressed this decision came as no surprise.

Richard Holden, CA ANZ chief economist, said with the decision, the RBA “rightly pointed” to elevated underlying inflation, a tight labour market and extremely strong domestic demand.

“This move was widely anticipated by both market participants and commentators. The RBA effectively had no choice but to lift rates. It is notable that the decision of the monetary policy board was unanimous,” Holden said.

Gavan Ord, CPA business and investment lead, said the rate hike was set to hit households and small businesses hard as it would compound existing cost-of-living pressures and stretch already tight budgets.

While the decision was expected, inflation remained stubborn in parts of the economy which wasn’t a positive sign for borrowers who believed the worst of the rate cycle was behind them, Ord added.

“Small businesses remain under pressure from high borrowing costs, rising inflation and low confidence. For many, there are no easy options left,” he said.

“What small businesses need most is decisive government action to reduce red tape and improve the overall business environment. Removing unnecessary regulatory burden helps businesses focus on growing, employing people and serving customers.”

Ord made the point that customers may begin to see these flow-on effects at the checkout, as small businesses would be left with no choice but to pass on these costs to customers.

“Incentivising small businesses to seek professional advice would strengthen resilience and improve long-term outcomes during periods of economic uncertainty.”

Business NSW also flagged the rate hike was likely to cause a blow to small businesses, which could range up to $1 billion.

According to the business advocacy body, cash would be “stripped” from small businesses as it could potentially wipe $17.5 million each month from balance sheets and force owners to shelve investment, let staff go and trim budgets.

Daniel Hunter, Business NSW CEO, said the lift of the cash rate by 0.25 per cent for the first time in two years was likely to intensify pressure on businesses and act as a wake-up call for policymakers.

“We need a wholesale, system-wide look at the cost of doing business in NSW and Australia,” he said.

“Interest rates are only one part of the equation. Governments at all levels must urgently address the structural pressures – industrial relations settings, energy costs, insurance premiums, payroll tax and red tape – that are compounding the challenges businesses face.”

“The latest increase risks pushing many beyond their limits. There must be wholesale tax reform, a prolonged look at productivity and genuine downward pressure on energy prices.”

“If we don’t act now, more businesses will fail, more jobs will be lost and the economic recovery will stall.”

The next RBA cash rate decision will occur on 17 March.