Why the Reserve Bank is sitting on its hands

The RBA looks like keeping rates on hold for a long time in bad news for savers.

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There was more bad news for savers today after the RBA left its base lending rate on hold at just 1.50% and gave no hint that it is inclined to lift rates anytime soon.

That's the bad news for savers, with the good news being that the RBA also offered little to suggest it's inclined to cut rates again. This is because it's caught between wanting to stimulate the economy (due to weak wage growth) without inflating house prices or consumer debt piles any further.

All else being equal, investors can expect rates to remain on hold for the rest of this year unless we see some kind of black swan event that changes the game for monetary policy.

In fact financial markets are now reportedly factoring in a 50% chance of a rate hike before Christmas, which means interest rates are all but certain to remain abnormally low for at least another 12 months.

That means fully franked dividend shares are likely to remain in favour with the likes of Commonwealth Bank of Australia (ASX: CBA), Insurance Australia Group Ltd (ASX: IAG) and APA Group (ASX: APA) all offering term-deposit-crushing returns.

Motley Fool contributor Tom Richardson has no position in any stocks mentioned. You can find Tom on Twitter @tommyr345 The Motley Fool Australia owns shares of Insurance Australia Group Limited. 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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