Why the Reserve Bank almost DIDN’T cut interest rates

The Australian dollar bounced higher today after the release of the minutes from the recent RBA meeting which saw the bank cut Australia’s cash rate by 25 basis points.

The market was shocked when the Reserve Bank of Australia cut interest rates to a record low of 1.75% a fortnight ago, leading to heightened speculation of when it might cut again. Some predicted there would be a rate cut next month or in August, while others have suggested interest rates could fall below 1% in the very near future.

However, it seems that some economists will be revising their predictions today with the markets now pricing in a smaller chance of a rate cut when the RBA meets again in June. The minutes from the May meeting revealed that the board members debated whether to cut or keep interest rates on hold, suggesting the need for a cut mightn’t have been as dire as first thought.

It said: “Members discussed the merits of adjusting policy at this meeting or awaiting further information before acting. On balance, members were persuaded that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting.”

As such, there is little for economists to go off as to whether, or when, the Reserve Bank of Australia will cut interest rates again. However, regardless of when (if) another cut does come, it is becoming increasingly clear that interest rates will remain low for the foreseeable future.

That means one of the best places for your investing dollars is in shares that offer solid dividend yields, including the likes of Telstra Corporation Ltd (ASX: TLS) or Wesfarmers Ltd (ASX: WES). Their fully franked 5.4% and 5% dividend yields (grossed to 7.7% and 7.1%, respectively) beat the pants off the returns you’d otherwise get from stashing your cash in a bank savings account.

Even better, The Motley Fool's renowned dividend investing guru recently revealed his newest dividend buy recommendation and short list of 3 Best Dividend Buys Now. Which means if you're reading this message right now, you're not on the list to uncover their names before they potentially go gangbusters. Simply click here to learn more about these shares.

Motley Fool contributor Ryan Newman has no position in any stocks mentioned. 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.