The Reserve Bank of Australia could be forced to slash interest rates further when it meets next Tuesday, following on from the 25 basis point cut earlier this month.
While there are arguments to suggest the RBA should hold off on swinging the axe again (more on that below), there are also a number of factors which could make it happen. To begin with, the Australian dollar has rebounded to an uncomfortably high US78 cents (the RBA wants it around US75 cents), while the unemployment rate remains at 6.4 per cent.
Now, figures from the Australian Bureau of Statistics (ABS) are also showing a larger-than-expected decline in business investment which fell 2.2% in the December quarter to $37.5 billion. Of course, miners such as BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) are heavily reducing their capital expenditure (capex) in light of the commodities downturn, but the loss of momentum in spending has also spread to the nation's non-mining sectors.
Political uncertainty is playing a key role in this, but further stimulus in the form of monetary policy could provide the kicker needed for a recovery in business confidence. As reported by The ABC, economists at Australia and New Zealand Banking Group (ASX: ANZ) are expecting the RBA to make a move next week, which could see the nation's official cash rate fall to just 2 per cent.
Ideally, the RBA wouldn't need to reduce interest rates further. After all, it is already concerned about the effects further easing could have on house prices which have boomed over the last couple of years, particularly in Sydney. Further interest rate cuts would also come as bad news for Australian retirees, or investors who derive their income from savings accounts or bonds.
Here's how you can profit
In order to maintain a reasonable level of income, investors will need to forget about fixed income securities and instead expose themselves to equities that offer solid dividend yields and growth opportunities.
Some of the companies to consider include Coca-Cola Amatil Ltd (ASX: CCL) and JB Hi-Fi Limited (ASX: JBH). Both companies possess strong growth potential, which could result in capital gains over the coming years, while they yield 4.3% (partially franked) and 4.9% (fully franked) respectively.
Woolworths Limited (ASX: WOW) is another excellent company for investors to consider. The company released a disappointing interim earnings report today which resulted in a near 10% plunge for the stock, creating a fantastic opportunity for long-term investors to buy. Despite its poor result, it still managed to increase its dividend payment with the stock now yielding 4.7%, fully franked.
