The Board of the Reserve Bank of Australia (RBA) surprised no one by deciding to leave the cash rate unchanged at 2.5% yesterday. Despite keeping rates at a historically low level the RBA maintained a reasonably upbeat tone on the state of both the domestic and global economies.
In commenting on the decision, Governor Glenn Stevens stated that, “growth in the global economy is continuing at a moderate pace.” The Governor also suggested in reference to Australia that, “overall, the Bank still expects growth to be a little below trend over the year ahead.”
So how should investors respond to these historically low rates?
Well one industry which appears to have found a way to benefit is banking. According to a report in The Australian Financial Review the banking industry has been increasing its margins by reducing the interest paid on term deposits by more than the rate of reduction borrowers have received off their mortgages. Given banks usually do well in a high interest rate environment, it looks like a case of ‘heads the bank wins, tails the customer loses!’
While the banks may continue to benefit, for investors concerned that Westpac Banking Corp (ASX: WBC) and its banking peers look a little too pricey to invest in, there are arguably safer ways to gain exposure to companies benefiting from low rates.
Record low rates are helping produce a booming housing market which should be good news for a range of housing industry exposed stocks. In fact on Tuesday, while the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) had fallen 0.4%, and most of the major banks were down over 1%, building materials suppliers CSR Ltd (ASX: CSR) and James Hardie Industries plc (ASX: JHX) had both gained ground. Likewise shares in Mortgage Choice Limited (ASX: MOC), a mortgage-broking company, had jumped nearly 3%.