RBA leaves interest rates unchanged: Are there more cuts to come?

High-yield dividend stocks such as Commonwealth Bank of Australia (ASX:CBA), Westpac Banking Corp (ASX:WBC) and Telstra Corporation Ltd (ASX:TLS) have all retreated after the RBA's decision.

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The Reserve Bank of Australia has made its latest call on the direction of interest rates with the Board electing to leave the rate unchanged at 2.0 per cent for the third consecutive month.

The outcome was widely expected with 25 out of the 28 economists surveyed by Bloomberg predicting the call while this morning's stronger-than-expected retail sales figures, released by the Australian Bureau of Statistics, only supported that theory.

Despite these expectations however, investors were clearly disappointed with the benchmark S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) losing ground immediately after the decision was announced. High yield dividend stocks such as Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and Telstra Corporation Ltd (ASX: TLS) were amongst the worst affected as the ASX 200 plunged more than 20 points.

On the other hand, the Australian dollar surged nearly 0.9% to 73.42 US cents after the bank dropped a key line that it has included in each of its most recent decisions. Today, the bank did not suggest that further depreciation of the Australian dollar was "both likely and necessary" but simply stated that: "the Australian dollar is adjusting to the significant declines in key commodity prices."

Indeed, the dollar is already hovering below the bank's long-targeted level of US 75 cents although some economists expect it will fall considerably below today's level. A lower Australian dollar is important to help rebalance the Australian economy in light of the crumbling commodity prices.

On a closing note, the Board said it would assess further information on economic and financial conditions over the period ahead and will thus decide whether the current stance on monetary policy is appropriate. As it stands, some economists believe it could be forced to cut rates once, or maybe even twice before the end of 2015 to support economic growth.

Regardless of whether there are further interest rate cuts on the way however, investors can have confidence that interest rates will remain low for the foreseeable future. With term deposits and government bonds offering woeful returns, investors should consider gaining exposure to some of the nation's best dividend-paying stocks which not only offer a steady stream of income, but also the chance at some tasty capital gains (note that I am not talking about the Big Four banks).

Motley Fool contributor Ryan Newman has no position in any stocks mentioned. You can follow Ryan on Twitter @ASXvalueinvest. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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