The S&P/ASX 200 (INDEXASX: XJO) slumped lower in the seventh consecutive day of losses for the Aussie share market. Concerns over the coronavirus outbreak have hammered global markets as concerns over global growth have reared their head.
However, today’s Reserve Bank of Australia (RBA) meeting could provide the tonic that ASX shares need. Markets are pricing in a 25 basis point (bps) RBA rate cut this afternoon with the potential for a 50 bps cut.
That would mean interest rates being slashed from their already record low 0.75% per annum. So what does this mean for the ASX and which shares could benefit from the cut?
What an RBA interest rate cut means for ASX shares
If the RBA lower rates today, that could provide a boost that markets need. Lowering the official cash rate is one of the few moves left in the central bank playbook. Economic theory suggests lower rates should encourage more borrowing because money is cheaper. That money should then flow through businesses and household spending and boost Australia’s GDP.
We saw a mixed bag in terms of the corporate earnings season in February. However, the coronavirus shutdown in China could have a much bigger impact on ASX shares than either February’s earnings or the devastating bushfire season.
Mirvac Group (ASX: MGR) shares could be in the buy zone if the RBA interest rate cut does occur. Cheaper money for borrowers could help boost residential property prices and help Mirvac’s portfolio valuation and earnings.
Similarly, the Aussie banks could be big winners from another rate cut. Commonwealth Bank of Australia (ASX: CBA) surprised the market with its half-year results recently, but another rate cut could help even more. Lower borrowing rates, combined with the ability to retain some of the interest rate cut, could help boost CBA’s net interest margin.
One of the other ASX shares that could benefit is Afterpay Ltd (ASX: APT). If the RBA does cut interest rates today, that should flow through to households in the form of cheaper debt and lower repayments. With more money to spend, Aussies could look to spend the extra cash on goods through Afterpay and spread out their payments while getting the product upfront.
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Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO. The Motley Fool Australia has no position in any of the stocks mentioned. 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.