Australian central bank cuts interest rate by 50 basis points.

<p>The wait and see approach embraced by the RBA since the last two rate cuts has today resulted in an admission, not so much of […]</p>

The wait and see approach embraced by the RBA since the last two rate cuts has today resulted in an admission, not so much of failure, but conceding it needs to do more now to stimulate growth.

Last week’s inflationary numbers opened the doors for a cut and the magnitude of the cut today shows the RBA is now not so much worried about its previously positive risks to inflation.

We think today’s rate cut will have an immediate impact to spending, even if the banks don’t fully price it through. In fact we actually do think the banks will be under pressure to pass it through. Margins are at comfortable levels and competitive pricing might actually cause volumes to improve for the banks on the RBA’s move.

Bottom line: The RBA is now likely to sit back and see how things pan out with enough ammunition up its sleeves should Europe turn ugly again over the next few months.

The financial sector of the share market will perform the best – banks, fund managers, listed property exposures.

If the currency comes off the retail sector could find some support but we think any rally in retail shares will be short lived. Stockland and Mirvac should start to see residential results improve from a reasonable base already.

The biggest losers will be those relying on interest income from term deposits, they could turn to dividend paying shares as an alternative, like Telstra for example, which will support share prices.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.