The rate cut we had to have
Last week’s interest rate cut was the cut we had to have.
And in my opinion it’ll be the first of two this year, with the second coming either in August or October.
The cut should flow through to your accounts towards the end of the month, with each of the Big Four cutting their variable rates in some capacity.
Westpac and ANZ failed to pass on the full cut this time, though I expect that they’ll even out when that second cut comes later in the year.
The result of the cut – along with the Coalition’s election victory consigning changes to negative gearing and franking credits to the dustbin of history – is that the economy is feeling a bit more positive.
This should lead to business feeling a little wealthier and the advantage of that for small business is the opportunity to take advantage of the government’s $30,000 instant asset write-off scheme, so we should see a spike in spending between now and June 30.
The flip side to the interest rate cut is that those who rely on high interest rates for their income will suffer. As a result, they’ll be forced to take slightly more risk in order to increase their cashflow.
Naturally they’ll turn to the property market, though confidence in the market is low as are rents and therefore yields.
Another option would be to consider bonds and terms deposits, but they’re not going to meet inflation and will generate ordinary returns.
The other, riskier option is the share market, which is riding 11.5 year highs but yielding strong returns.
If you find yourself in this situation, I’d suggest touching base with your financial adviser to work out what’s best for you.