RBA keeps interest rates on hold: What next?

The Reserve Bank of Australia elected to leave interest rates unchanged at a record low of 1.5% with just two meetings remaining in 2016.

The result was hardly a surprise. According to the ASX, market participants were pricing in a mere 2% chance of a rate cut to 1.25% at today’s meeting. IG also noted that not one of the 25 economists surveyed by Bloomberg expected the RBA to ease the cash rate today, despite a general climb in the Australian dollar recently.

Indeed, if the Australian dollar does experience a sharp rise from its current level of around US76.7 cents, the RBA could be forced to cut interest rates further. After all, a weaker dollar is supportive of our export market, and an upward reversal would likely complicate the adjustments deemed necessary for the local economy.

Meanwhile, the RBA is also aware of a large decline in business investment and the low inflation rate, although the low interest rates currently available on loans should help to bolster those measures over time.

It remains unclear when, or if, the Reserve Bank will lower interest rates again after having done so as recently as August (and also in May). There wasn’t much in the way of easing bias in today’s announcement, however, suggesting that the board’s new governor, Phillip Lowe, will take a more gradual path to achieving the RBA’s target rate of 2% to 3% inflation growth.

That said, it’s also unlikely that they will hike interest rates anytime soon, meaning that interest rates are likely to remain lower for longer.

Although some of the most popular dividend shares are arguably out of the buy-zone, investors could still look to others such as Retail Food Group Limited (ASX: RFG). Offering a fully franked yield of 3.5%, or 5% gross, that’s greater than what you’d likely receive from stashing your money in the bank.

BONUS: Why These 3 Blue Chip Shares Are Set to Soar

Discover The Motley Fool's Top 3 blue chips for 2016. These 3 'new breed' shares pay fully franked dividends AND offer the prospect of significant capital appreciation. Simply click here to gain access to this comprehensive FREE investment report.

No credit card required!

Motley Fool contributor Ryan Newman owns shares of Retail Food Group Limited. The Motley Fool Australia owns shares of Retail Food Group Limited. 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.