Rate Cut Winners

SYDNEY -- Yesterday's decision by the Reserve Bank of Australia (RBA) to cut official interest rates by 0.25% to 3.25% is likely to give local retailers a boost. While the major banks have yet to move to cut their interest rates, its highly likely that they will do so in the coming days, especially after the Federal Treasurer, Wayne Swan, urged the banks to pass on the full rate cut. Bank of Queensland was the first of the regional banks to move, passing on 0.2% to its home loan customers.

If the banks do cut rates, many homeowners should see their mortgage repayments fall slightly, allowing them a little bit of extra breathing space, and perhaps extra income to fund some of those luxuries they've done without. Coming up to the Christmas holiday season, that could be good news for consumer discretionary stocks such as JB Hi-Fi Limited (ASX: JBH.AX), Premier Investments Limited (ASX: PMV.AX), Nick Scali Limited (ASX: NCK.AX), and Kathmandu Holdings (ASX: KMD.AX).

We reported yesterday that some retailers are stocking up on inventory as they expect higher sales in the last quarter of the year, and want to ensure they have enough product to meet demand. Heavy discounting is also expected to feature, giving consumers another reason to go out and spend.

Also, many economists are expecting further interest rate cuts in the next six months, which should provide additional spending stimulus.

However, not everyone thinks the rate cut will prompt consumers to go out and spend. The main reason the RBA cut rates was on concerns over China's slowing growth, Europe's lingering sovereign debt issues, and the high Australian dollar. While the dollar has fallen slightly, Europe's woes still exist, and consumers may still be worried about the fallout from China cutting back on buying our resources and energy. That may prompt many Australians to keep their hands in their pockets for a while yet.

Foolish takeaway
It will be some time before the effects of this rate cut show up in the local economy – and may have very little effect, should the banks refuse to pass on at least some of the rate cut to customers.

If you're in the market for some high yielding ASX shares, look no further than our free report:  "Secure Your Future With 3 Rock-Solid Dividend Stocks." In this free report, we've put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favorite income ideas. But hurry -- the report is free for only a limited time.

More reading:

Motley Fool writer/analyst Mike King owns shares in JB Hi-Fi. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, while it's still available. 

The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

This article contains general investment advice only (under AFSL 400691). Authorized by Bruce Jackson.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2041969, ~/Articles/ArticleHandler.aspx, 11/23/2014 8:26:58 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement