Motley Fool Australia

RBA to cut rates?

Speculation is mounting that we could see another interest rate cut from the Reserve Bank of Australia (RBA) tomorrow.

Currently sitting at all-time lows of 2.75%, the official cash rate could be cut another 25 basis points to 2.5%, following last month’s similar cut. Disappointing economic data out recently, including subdued inflation, a weak manufacturing sector, lower than expected retail sales and falling job advertisements could all add up to another rate cut on Tuesday.

Inflation low

Inflation rose 0.2% in May according to TD Securities and the Melbourne Institute, taking annual inflation to 2.2%, which is at the lower end of the RBA’s 2-3% target range. That’s despite the Australian dollar’s recent depreciation, which has yet to make an impact on consumer prices.

More weak data

The manufacturing sector has suffered its 23 consecutive month of contraction, according to the Australian Industry Group’s Performance of Manufacturing Index, released today. At the same time, job advertisements fell for their third consecutive month, according to a survey by ANZ Bank, and were now 28% below their peak in 2010.

House prices remain subdued, despite continued strength in auction sales and clearance rates. Capital city home prices slid by 1.2%, following on from a 0.5% decline in April. Continuing the trend, retail spending rose just 0.2% in April, according to the Australian Bureau of Statistics (ABS) and below economists’ expectations. Department store retailers David Jones (ASX:DJS) and Myer Holdings (ASX:MYR) both recently reported weak quarterly sales of -3.4% and 0.5% respectively. Household goods’ sales also fell in April, signally bad news for white goods retailers like Harvey Norman Holdings (ASX:HVN) and JB Hi-Fi Limited (ASX:JBH).

Foolish takeaway

The recent depreciation of the Australian dollar could see the Reserve Bank take a ‘wait-and-see’ approach this month, to give it some time to work through the economy. Most economists and the market are not expecting a rate cut tomorrow – but then again, neither were they expecting a cut last month.

In the market for high yielding ASX shares? Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading


Motley Fool writer/analyst Mike King owns shares in JB Hi-Fi.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of February 15th 2021

Related Articles…