Rates decision unlikely to impact stocks

Rates decision unlikely to impact stocks

By Ric Spooner (Chief Market Analyst, CMC Markets)

Australian share valuations will continue to assume lower rates even if the RBA does not lower the cash rate today.

While today’s RBA meeting will be closely watched by financial markets, the decision probably won’t have much impact on the share market unless the Governor’s statement indicates a more aggressive easing bias.

Stocks are priced on the assumption that the RBA is likely to cut rates to 2.5% before the current easing cycle ends. If the Bank doesn’t cut rates today, the consensus view will anticipate a move next month.

Australian economic indicators are nearly all pointing to a moderate, soggy growth scenario in recent months. Inflation figures give the RBA scope to cut rates and with the likelihood of tax increases and cuts in government spending plus a stubbornly high Australian Dollar the chances are we will see the Bank act either this month or the next.

After a strong day yesterday, resource stocks are also likely to pause ahead of the batch of monthly statistical releases on China’s economy due later this week. Tomorrow’s export figures will be the first of these and traders are likely to be cautious given the potential impact on commodity markets of any indications that growth in China continues to moderate.
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