Last month's surprise interest rate cut laid the foundations needed for enormous share market returns.
While most analysts had expected the Reserve Bank to hold off on slashing interest rates for at least one more month, the bank made its first change in 18 months, pushing the cash rate down to a record low of 2.25%.
That was enough to spur one of the strongest months on record for the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) which rose a remarkable 6.1%. Indeed, that was driven largely by some of Australia's largest and most widely-held dividend-paying stocks, notably Commonwealth Bank of Australia (ASX: CBA), Telstra Corporation Ltd (ASX: TLS) and Westpac Banking Corp (ASX: WBC), to name just a few.
Now, we're facing the prospect of yet another interest rate cut when the Board meets today with 18 out of 29 analysts surveyed by Bloomberg expecting a downward revision. The remainder believe rates will be cut again by May, at the latest. Meanwhile, the Fairfax press is reporting a 93% chance of a rate cut being priced in by the fixed income market, up sharply from 59% overnight.
Indeed, the share market could be in for a strong rise or fall, depending on which way the RBA goes. Should it cut rates by 25 basis points to just 2%, the ASX 200 could rise above 6,000 points for the first time in seven years, driven predominantly by high-yield dividend stocks. Should it choose otherwise, the market could react negatively, pushing stock prices lower later in the afternoon.
Stay tuned and watch this space – we'll have a full write-up on the RBA's decision after 2:30pm AEST, and what it means for you as investors.
