Although it elected to leave interest rates untouched earlier this month, the Reserve Bank of Australia has indicated that it is open to further easing in the near future.
In its Board minutes, which were released yesterday, the RBA referred to the possible need for further interest rate cuts, despite the impact that it could have on Australia's hot property market. As it stands, consumer and business confidence both remain low while unemployment remains high, all of which are contributing to below-trend economic growth.
While the board recognised that its previous rate cut (which came in February) could provide support to the economy – its current forecasts for growth and inflation indicated that "a case to ease monetary policy further might emerge."
What this means for you
Obviously, it's never a great sign when a nation's central bank feels the need to intervene with lower borrowing costs. As is currently the case, interest rate cuts are viewed as a necessity in order to help the local economy avoid a sustained period of lacklustre growth, or even a recession. It's also bad news for retirees or those Australians with their money stashed away in 'risk-free' asset classes, as lower rates will no doubt decrease their standard of living.
On the other hand, there are two pools of investors who stand to benefit handsomely from further interest rate cuts. The first group are those who own companies exposed to international markets, including Westfield Corp Ltd (ASX: WFD), ResMed Inc. (CHESS) (ASX: RMD) and Amcor Limited (ASX: AMC), to name just a few. As interest rates fall, our dollar will continue to weaken which will boost the value of their internationally-generated earnings once reported in Australian dollar terms.
The second group of investors to benefit from lower interest rates are those who have put their money into high-yield dividend stocks which continue to drive the Australian share market higher. Right now, companies such as Coca-Cola Amatil Ltd (ASX: CCL) and even QBE Insurance Group Ltd (ASX: QBE) still look reasonable buys to help you profit from lower rates.
