1. A green light for growth stocks
Growth shares, particularly in technology,healthcare, and discretionary sectors, have felt the weight of rising interestrates over the past two years. With rates now trending lower:
- WiseTech Global (ASX: WTC), Xero (ASX: XRO), and Nanosonics (ASX: NAN) have seen renewed interest, as investors reprice future earnings with a lower discount rate.
- Businesses with high earnings potential and scalable platforms are likely to benefit most from a sustained easing cycle.
Falling rates boost valuations for growthstocks and ease capital funding conditions — a welcome shift after a tight2023–24.
2. Boost for real estate, infrastructureand REITs
Sectors tied to long-duration cash flowslike real estate and infrastructure tend to outperform when interestrates fall.
- Goodman Group (ASX: GMG) and Dexus Industria REIT (ASX: DXI) may benefit from improved asset valuations and refinancing terms.
- Transurban Group (ASX: TCL) also stands to gain, with toll revenues providing steady cash flow as debt servicing becomes cheaper.
The rate cut could also prompt income-seekinginvestors to rotate out of cash and term deposits and back into yield-payingASX stocks.
3. Banks: A balancing act
For banks like ANZ Group Holdings (ASX:ANZ), a rate cut introduces mixed dynamics:
- Net interest margins (NIMs) may come under modest pressure as lending rates fall.
- However, the cut could also stimulate credit growth, boost home loan volumes, and reduce default risk.
The RBA’s move also reduces the drag onmortgage borrowers, improving household balance sheets — a net positive for thebanking sector over the medium term.
4. Consumers and discretionary retail infocus
With mortgage repayments easing,consumer-facing businesses may enjoy a modest rebound.
- Stocks like Inghams (ASX: ING), Harvey Norman (ASX: HVN), and JB Hi-Fi (ASX: JBH) could benefit from improving spending sentiment.
- Lower rates also take the pressure off small businesses and employment — supporting broader economic activity.
If the RBA’s pivot boosts confidence,discretionary sectors could outperform defensive ones over the next fewquarters.
5. What’s next for monetary policy?
With inflation now within the RBA’s 2%–3% target range, economists expect further rate cuts in the second halfof 2025 — possibly bringing the cash rate down to 3.35% or even 3.10%.
In its statement, RBA Governor MicheleBullock noted:
“With inflation now in line with target andleading indicators of growth softening, monetary policy no longer needs to beas restrictive. Our focus is on ensuring a soft landing.”
Markets are already pricing in at least onemore rate cut by September.
Bottom line
The RBA’s May 2025 decision to lower thecash rate to 3.85% marks the beginning of a new easing cycle — one driven not by fear of recession, but by confidence that inflation is undercontrol.
For ASX investors, this could be a pivotalmoment. Growth stocks, infrastructure, real estate, and consumer names arelikely to lead the charge. While not without risk, the outlook for equities looks brighter as policy settings finally shift toward supporting sustainable economic expansion.
