The Reserve Bank of Australia has announced it will keep interest rates on hold for at least another month.
The nation's cash rate has been stuck at 1.5% since August 2016 when the RBA reluctantly edged rates lower by 25 basis points. Since then, there have been signs of improvement across the economy with some analysts suggesting the next move by the RBA will be to increase interest rates, indicating that the rate-cutting cycle is over. However, there are still some reasons for the central bank to be hesitant in doing so, including the nation's debt levels and rising house prices.
The low interest rate environment has also played a key role in driving shares of high-yield dividend companies higher in recent years, including the likes of Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC). Telstra Corporation Ltd (ASX: TLS) shares have also benefited, although they have since fallen based on concerns about the company's future earnings potential and confirmations the group will cut its dividend.
In its announcement this afternoon, the RBA said that conditions in the global economy have improved and that recent inflation figures support the bank's belief that that the Australian economy will gradually pick up over the coming year. This is further supported by evidence that non-mining business investment is picking up.
The Bank also commented on the currency, noting that "The Australian dollar has appreciated since mid year, partly reflecting a lower US dollar. The higher exchange rate is expected to contribute to continued subdued price pressures in the economy. It is also weighing on the outlook for output and employment."
If the AUD continues to rise, it could result in a slower pick-up in economic activity and inflation than is currently forecast by the Reserve Bank. That said, the dollar has pulled back somewhat over the past week or so, towards a level the bank would likely be more comfortable with.
Although investors shouldn't hang their hopes on any further interest rate cuts, it appears unlikely that interest rates will shoot much higher in the near future. Thus, shares offering reasonable growth and a solid dividend yield still look to be a good opportunity.
