How directors can navigate cash rate changes

What should directors consider as they look to strategically position their organisation for the future in an uncertain global climate?

The Reserve Bank’s decision in May to cut interest rates by 25 basis points brought some relief for mortgage holders and was welcomed as a sign inflation is being brought under control. 

Michelle Loader MAICD - Managing director Future Leadership

What questions should directors be asking in the wake of an interest rate cut?

My mind goes to leveraging lower cash rates to drive strategic growth transformation. Reduced borrowing costs tend to present an opportunity for investment and the success rate for transformations is normally higher during periods of low economic growth. A director’s lot is linking today to the future. It’s asking how we can strategically utilise the current low interest environment to invest in transformative ideas that will put us ahead of our competitors. How can we consider, think at pace and invest at pace to be market-leading?

How do you balance risk and resilience?

It’s about balancing creativity with discipline. If we think about fostering a creative culture while staying disciplined, companies that achieve this balance will see a couple of points hit compared to the baseline. When it comes to balancing that, are we encouraging innovative thinking while ensuring rigorous execution? Are we ensuring our incentives and resources are structured to promote innovation? That might be having a dedicated innovation team. It might be implementing robust governance frameworks. It might be monitoring and progressing outcomes.

What else should directors be discussing?

Sustainability really has to underpin every transformation effort — the more we connect to sustainable growth, the more transformation makes logical sense. Boards should consider how sustainability initiatives can drive the long-term value and resilience of the organisation. How are we incorporating sustainable considerations into our strategies to ensure sustainable growth? So it might be ESG, but ESG in line with business objectives like reducing carbon footprint or driving diversity, and integrating them into our transformation road map.

Ashleigh Morris GAICD - CEO and co-founder Coreo

What questions should directors be asking?

I’d frame the conversation around whether we’re using this moment to sharpen resilience and reposition for future growth, not just to soften near-term financials. Low rates aren’t a free pass, they’re a test of who can think long-term.

How might that longer-term thinking look?

Cheaper capital creates a window to double down on resilience. Directors should ask whether we’re using this moment to future-proof assets against tightening regulation, climate risk, nature loss, water scarcity and mounting pressure to reduce waste and pollution. The question isn’t whether you can afford to invest, it’s whether you can afford not to invest.

How might boardroom thinking differ from sector to sector?

In resource-heavy sectors such as mining and energy, boards should examine whether lower financing costs make large-scale infrastructure and transition technologies — circular economy initiatives, renewables integration and regenerative models like metals as a service — more financially attractive. In consumer and service sectors, the focus should shift to customer affordability, credit risk and exposure to economic volatility.

Kirsten Smith AAICD - Principal consultant Governance In Focus

What questions should directors be asking?

Even the most basic question is vital — how exposed are we to these interest rate changes? If we are an NFP, do we need to stress test our funding models? Are our reserves working hard enough? Are they in the right places when there is a change?

I’d also question the balance between risk and resilience. Boards might say, that’s for the risk and compliance team to worry about. But boards need to know what they’re comfortable with. Have a risk appetite statement — even if not everybody agrees, which they never do. Just something that says, right, our risk appetite is here, we’ve all agreed on it, let’s move on. That helps get decisions quickly.

What opportunities do you see?

It’s the perfect time to refinance debt at a lower rate. And if you’ve put major projects on hold, now is the time to have a look at those, because they could be affordable. If you’re in a growth industry, it’s potentially a good time to borrow. For NFPs in particular, where they park their reserves is really important. I’d be pulling out any short-term savings accounts and potentially putting them into shares — as long as they’re not with the US, it’s a little volatile at the moment. [Note: Investors should obtain independent financial advice before making any investment decision based on information published here.]

Is there a danger of acting rashly?

Don’t rush into anything, ever. But this is such a big opportunity, I’d like boards to discuss it, then move quite quickly on it. The cash rate hasn’t been below four per cent in the past two years, so now’s the time to really capitalise on that. Directors rely on being informed by the CFO and CEO as to the potential impact of any change. They should be communicating prior to any board meeting — what do we think about this? Have your CFO present a paper saying, these are our potential options. Then you can discuss it with an informed view.

This article first appeared under the headline 'Coping with cash rate changes' in the July 2025 issue of Company Director magazine.