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RBA Interest Rate Decision: HOLD

The Reserve Bank of Australia (RBA) has kept official interest rates on hold at 2%.  

RBA governor, Glenn Stevens, recently commented that he was prepared to “chill out” on cash rate cuts and today added:

“In Australia, the available information suggests that moderate expansion in the economy continues in the face of a large decline in capital spending in the mining sector… Low interest rates are acting to support borrowing and spending.”

The RBA’s interest rate decision echoes the expectations of analysts and economists who forecast rates to remain on hold.

Surging dwelling prices, which were a significant concern for the RBA earlier this year, appear to have eased.

“While the recent changes to some lending rates for housing will reduce this support slightly, overall conditions are still quite accommodative,” Mr Stevens said.

The bank believes inflation, another important consideration for the RBA board, is in-line with its expectations. “Inflation is low and should remain so, with the economy likely to have a degree of spare capacity for some time yet,” Stevens said. Inflation is currently pegged at 1.5%, slightly outside the RBA’s target range of 2% to 3%.

Finally, Mr Stevens added, “At today’s meeting the Board again judged that the prospects for an improvement in economic conditions had firmed a little over recent months and that leaving the cash rate unchanged was appropriate. Members also observed that the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand.”

The local S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) continued to push higher following the news. Clearly, investors will continue to seek dividend-yielding stocks to offset the low returns from savings accounts, term deposits and now property.

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Motley Fool contributor Owen Raszkiewicz has no position in any stocks mentioned.

Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest.

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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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