Mixed economic data at home and abroad resulted in the Reserve Bank sticking to its wait-and-see approach on monetary policy. The RBA does not meet in January and the chances of a move up or down before February look slim without significant or unexpected changes to the global macroeconomic environment.
“The Board’s judgement was that, given the substantial degree of monetary stimulus that had been imparted, it would be prudent to leave the cash rate at the existing low level while continuing to gauge the effects,” the minutes said.
One effect the RBA had been hoping to see more of is a falling dollar. Australia’s manufacturing and tourism sectors continue to struggle. Only yesterday Toyota announced that 100 jobs were to be cut from its Melbourne plant, and unless the dollar falls further, the outlook for manufacturing and tourism remains tough.
Its concluding statement supported evidence that the RBA currently has a modest inclination towards another rate cut. “The Bank should again neither close off the possibility of reducing rates further nor signal an imminent intention to reduce them.” The board also noted that economic growth remained “below trend” this quarter and is expected to remain “below trend over the next year or so before an expected pick-up.”
Stocks likely to benefit from a continuing low-rate environment are reliable dividend payers with rock-solid earnings streams. The big four banks remain well supported as does Telstra (ASX: TLS) and supermarket giants Woolworths (ASX: WOW) and Wesfarmers (ASX: WES).
Another upshot of the low-rate environment has been rising house prices, as acknowledged in the board’s minutes: “House prices increased by around 2.5 per cent over the September quarter and 5.5 per cent over the year.” Residential developers have seen an upswing in valuations recently and should continue to profit from growing home prices. To take advantage of this trend investors could consider homebuilders like Mirvac (ASX: MGR), Stockland (ASX: SGP) or Australand (ASX: ALZ).
With the RBA now seemingly intent to wait, it’s fair to say the hunt for yield will remain a priority for many investors. Investors need be careful though as a high yield is often a sign the market expects a dividend payment to be cut. First and foremost, investors should assess a company’s long-term growth prospects, as these are what drive its ability to support and grow its dividend payments. The Motley Fool’s research team has handpicked one such company and below you can discover what it is.
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Motley Fool contributor Tom Richardson owns shares in Telstra.