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Will a RBA rate cut save the ASX?

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Can a Reserve Bank of Australia (RBA) rate cut save the ASX from further falls?

Some investors seem to think so, the ASX has already been volatile. Some shares started the day in the red and now those same shares in the green. For example, the Altium Limited (ASX: ALU) share price dipped below $30 and now it has reached $32.

Australia’s central bank has been doing most of the heavy lifting over the past year to reenergise the property market and now investors are hoping that the share market can be supported.

The coronavirus is causing fear for Aussie investors for a number of different reasons. The Chinese are very important for Australia’s whole economy and some companies in-particular. China supplies a large amount of items needed in supply chains. The coronavirus could become a problem in Australia like it is in South Korea and northern Italy.

Can the RBA save the ASX, and should it?

Well, it could be one of those self-fulfilling situations where if people think the RBA can support the market and they buy shares, then it becomes reality. However, the problem isn’t that people & businesses are paying a bit too much on their loan interest, the coronavirus is causing problems for the real economy with supply and demand which is then working its way to business operations.

Arguably, an RBA cut wouldn’t actually do that much, particularly if major banks like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) don’t pass on the full cut.

Besides, the Australian government has much more power and flexibility to do different things to help people or businesses through the coronavirus troubles.

I think the RBA will end up cutting tomorrow by 0.25%, but that’s just a guess. The spread, or limiting of the spread, of the coronavirus will make the biggest difference to the share market over the next few months.

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Motley Fool contributor Tristan Harrison owns shares of Altium. The Motley Fool Australia owns shares of Altium. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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