The RBA governor has suggested that the central bank may not cut interest rates further. What would this mean for ASX shares?
The Reserve Bank of Australia (RBA) is Australia’s central bank. One of its biggest roles is to decide Australia’s interest rate, taking into account economic conditions including unemployment, inflation and the housing market. The RBA interest rate has a ripple effect across the whole economy.
RBA’s Surprise Comments
According to the Australian Financial Review, RBA boss Dr Lowe was speaking at an International Monetary Fund (IMF) event he said the factors that caused the recent cuts could improve next year, meaning more cuts weren’t needed:
“I wouldn’t assume it. I don’t think it’s the right assumption to make that we’re going to have a lot more work to do to get inflation back to target and growth back to trend.
I think it’s quite probable that we’ll see a return to trend growth over the next year, which will be good. Which will help get the unemployment rate down and gradually wages will pick up.”
I’m glad Dr Lowe is saying that interest rates may not go lower, at least this year. I think interest rates have already gone too low, it sends the wrong message to people and probably causes most people to close up their wallets.
What Does This Mean?
Low interest rates aren’t good for banks like Commonwealth Bank of Australia (ASX: CBA) and they aren’t good for savers either.
Growth shares like CSL Limited (ASX: CSL) and yield shares like Transurban Group (ASX: TCL), Sydney Airport Holdings Pty Ltd (ASX: SYD) and Goodman Group (ASX: GMG) have benefited as investors reach for better returns.
But unless you’re expecting huge interest rate changes I think it’s best to focus on shares that are at good prices regardless of interest rates. This is one of my favourite ideas today, as well as the growth shares in the free report below.
At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.