This afternoon the Reserve Bank of Australia or RBA announced they will leave rates on hold at 1.5%. Anti-climax much?
Why The RBA Held
To be honest, I’m not entirely sure why the RBA held fire on interest rates…
But, I’m guessing their belief that “the central scenario is for the Australian economy to grow by around 2¾ per cent in 2019 and 2020″ had a bit to do with it.
The RBA has an inflation target of 2-3% “on average, over time“, so it looks like the RBA views the short term inflation drop of 1.3% over the past year as a blip on the radar and the economy is trending on track.
Further Rate Cuts Soon?
Despite keeping their powder dry, the RBA said: “a further improvement in the labour market was likely to be needed for inflation to be consistent with the target” leaving the door open for possible further cuts. The RBA also said they will be “paying close attention to developments in the labour market at its upcoming meetings“.
As of this morning, the 30-day interbank cash rate futures market was pricing in not just one but a further two rate cuts over the next 12 months.
What It Means To Investors
If you’re a saver or retiree, low-interest rates are not ideal. However, it hasn’t been great for a while now so today’s news is nothing new.
Investors will probably continue their search for dividend yield with ASX shares like Telstra Corporation Ltd (ASX: TLS) — which may cut its dividend again, much like National Australia Bank Ltd (ASX: NAB) did last week.
At the end of the day though the RBA’s decision shouldn’t impact your investments. The principles of buying good quality companies at reasonable prices rings true whether interest rates are at 1.5% or 5%. In the long-term, buying shares in good quality companies should protect you against inflation and help you grow wealth.
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Disclosure: At the time of publishing, Andrew does not have a financial interest in any of the companies mentioned.
