RBA leaves interest rates unchanged, but is a cut just around the corner?

Interest rates will stay at 2 per cent for another month, but there could be another cut before the year is through.

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There were no surprises from the Reserve Bank of Australia today with the central bank electing to leave interest rates unchanged at 2 per cent.

So far, the Bank has adjusted interest rates twice this year; once in February and then in May. Some investors had hoped last week's severe market volatility would force the Board's hand again today – especially in light of the deteriorating outlook for China's economy – but it seemed a far reach considering not one of the 25 economists surveyed by Reuters expected a cut at today's meeting.

The Board did refer to the volatility associated with developments in China, although it also pointed to stronger US growth; a steady unemployment rate over the past year locally; together with inflation levels within the Bank's target range as reasons why interest rates should remain on 'hold'.

As expected, it also discussed the prospect of an interest rate hike in the United States 'over the period ahead'. A rise in interest rates in the US will likely act to weaken the Australian dollar against the US greenback and should thus help to offset some of the impact of falling commodity prices, and bolster our exports.

For now, the Reserve Bank will hold off for at least one more month before reassessing its stance on monetary policy, with some analysts expecting at least one more rate cut before the end of 2015. That would be great for investors behind companies like Telstra Corporation Ltd (ASX: TLS) and Collection House Limited (ASX: CLH), which both offer solid, fully franked dividend yields.

For now however, there were no positive surprises from the market following the result with the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) remaining 1.4% lower for the day at 5140 points. With low interest rates expected to remain the norm for the foreseeable future, now could be an excellent time to load up on high-yield dividend-paying companies.

Motley Fool contributor Ryan Newman owns shares in Collection House Limited. 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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