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RBA holds steady

Like most Aussies, I was glued to my television watching Green Moon come down the straight and win the Melbourne Cup. Call me a tad boring (if you must!) but before ‘the race that stops a nation’, rather than enjoying the spirit of spring racing carnival, I was quietly reviewing the Reserve Bank of Australia’s (RBA) monthly statement on monetary policy.

The monetary policy statement publishes the decision on official interest rates and is always released on the first Tuesday of the month. In its latest release, the RBA viewed the dangers of further downside risks to the economy as roughly balanced by signs of improvement. This resulted in the decision to hold the cash rate steady at 3.25% for November. While interest rates ultimately touch every corner of the economy, the banking, building, and retailing sectors are particularly affected.

One of the more interesting developments that coincided with the RBA’s decision was the announced partnership between Macquarie Bank (ASX: MQG) and the Mark Bouris-backed Yellow Brick Road (ASX: YBR). Essentially this tie-up paves the way for Macquarie to re-enter the home loan market by providing mortgage products for distribution through Yellow Brick Road. Given how reluctant the ‘Big 4’ banks have been to pass on any rate cuts in full, this partnership might force their hand through increased competition. Longer term this could be a negative for bank sector earnings.

Turning to the retailers, they were hoping for some rate cut stimulus to help boost consumer spending. With Harvey Norman’s (ASX: HVN) first quarter like-for-like sales showing a 7.8% fall, there can be no doubt that most retailers are still struggling. With the all-important Christmas period nearly upon us, it will be interesting to see how Harvey Norman and others including David Jones (ASX: DJS) and JB Hi-Fi (ASX: JBH) fare over the next few months.

Foolish takeaway

Guessing which way the RBA will move on rates is best left to the economists, who seem to think that debating their next decision is vitally important. For us Fools, we prefer to focus our time and energy on picking the businesses that we believe, with a high level of confidence, will be meaningfully more profitable in 3, 5, and 10 years from now.

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Motley Fool contributor Tim McArthur owns shares in Macquarie Bank. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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