THE sharemarket closed more than half a percentage point lower after the Reserve Bank cut the cash rate to 3 per cent amid a weak global growth outlook.
At the close, the benchmark S&P/ASX 200 Index was 27.9 points, or 0.62 per cent, lower at 4503.6.
The Reserve Bank cut the cash rate by 25 basis points to 3 per cent, a level not seen since the global financial crisis, and said global growth was expected to be below average due to the European debt crisis and the looming US fiscal cliff.
Options Xpress analyst Ben Le Brun said overall it had been a disappointing day.
"When perception gets ahead of reality we start to see some wild fluctuations or some wild price movements, and that's certainly what we saw," Mr Le Brun said.
All sectors of the market, with the exception of healthcare, turned negative after the interest rate cut and the release of the RBA's accompanying statement. Investors had priced in some softness before the overseas session.
The chairman of retailer Premier Investments, Solomon Lew, told the company's annual meeting the macro-economic environment remained challenging. Premier Investments shares fell 7? to $6.40.
Gold stocks were weaker, with Newcrest Mining down 46? at $24.80. BHP Billiton was down 28? at $34.26, while Rio Tinto was 13? lower at $58.41.
In the banking sector, ANZ shares were 10? lower at $24.59, while Westpac shares were down 14? to $25.42. National Australia Bank fell 4? to $24.25 and Commonwealth Bank dropped 31? to $60.50.
The spot price of gold in Sydney was $US1701.62 an ounce, down $US17.63.
National turnover was 1.2 billion securities worth $3 billion.
Meanwhile, the dollar rallied after the central bank's interest rate cut.
Late on Tuesday, the dollar was trading at US104.38?, up from US104.06? on Monday.
Easy Forex currency dealer Anthony Botros said the dollar rallied on the decision because the 25-basis-point interest rate reduction was fully expected by the market and further interest rate cuts from the RBA looked unlikely.
"They said recent easings of late are starting to work their way through the economy and they foresee that inflation pressure will be contained in the next one to two years," Mr Botros said.
"So the market has taken that on board as though the rate cut we saw in October and in December might be all for the time being."
Frequently Asked Questions about this Article…
How did the ASX (S&P/ASX 200) react to the RBA rate cut to 3%?
The sharemarket fell after the Reserve Bank cut the cash rate. The S&P/ASX 200 closed down 27.9 points, or about 0.62%, at 4,503.6 as investors reacted to the RBA decision and the bank’s accompanying statement.
How large was the Reserve Bank of Australia (RBA) cash rate cut and why did they make it?
The RBA cut the cash rate by 25 basis points to 3%, a level not seen since the global financial crisis. The bank cited a weak global growth outlook — pointing to the European debt crisis and concerns about a looming US fiscal cliff — as reasons for easing.
Which ASX sectors were hit hardest after the RBA statement and rate cut?
All sectors except healthcare turned negative after the rate cut and the RBA’s statement. Investors had already priced in some softness, and the broader market reaction pushed most sectors lower on the day.
What happened to retailer Premier Investments and what did its chairman say?
Premier Investments’ shares fell after the RBA move — the stock was trading around $6.40 — and chairman Solomon Lew told the company’s annual meeting that the macro-economic environment remained challenging.
How did major miners and gold stocks perform on the day?
Gold and mining stocks were weaker. Newcrest Mining was trading at about $24.80, BHP Billiton around $34.26 and Rio Tinto near $58.41. The spot price of gold in Sydney was about US$1,701.62 an ounce, down roughly US$17.63.
What was the reaction in the big four banks after the RBA cut?
Major banks eased on the news: ANZ was trading around $24.59, Westpac about $25.42, National Australia Bank near $24.25 and Commonwealth Bank around $60.50, reflecting downward moves across the banking sector.
How did the Australian dollar move after the RBA’s decision and why did it rally?
The Australian dollar rallied following the rate cut — trading at about US104.38c, up from US104.06c — because the 25‑basis‑point reduction was fully expected by the market and further cuts from the RBA looked unlikely, according to currency dealers quoted in the article.
What practical lesson did analysts give investors about market moves after the rate cut?
Analysts warned that perception can get ahead of reality and drive sharp price swings. Options Xpress analyst Ben Le Brun described the day as disappointing and highlighted that when perception leads, you can see wild fluctuations — a reminder for everyday investors to expect volatility around big policy announcements.
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