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.


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