RBA keeps rates on hold

As was largely expected by economists and market commentators, the Reserve Bank of Australia has kept the cash rate on hold at the record low of 1.5%.

This means that the nation’s cash rate has now been stuck at 1.5% for 18 months following its 25 basis point cut in August of 2016. And judging by its statement today, the central bank doesn’t appear to be in a rush to take rates higher.

According to the Reserve Bank’s statement:

“Inflation is low, with both CPI and underlying inflation running a little below 2 per cent. Inflation is likely to remain low for some time, reflecting low growth in labour costs and strong competition in retailing. A gradual pick-up in inflation is, however, expected as the economy strengthens. The central forecast is for CPI inflation to be a bit above 2 per cent in 2018.”

Until inflation is comfortably in its target range of 2% to 3%, I wouldn’t expect to see the Reserve Bank take any action with the cash rate.

Its lack of urgency becomes more apparent in its widely read final paragraph, where the central bank summed up its thoughts on interest rates as:

“The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.”

What now?

With rates on hold for the foreseeable future I think that savers should seriously consider skipping term deposits and savings accounts in favour of some of the high quality and high-yielding dividend shares on offer on the Australian share market.

Especially after today’s market meltdown has brought shares down to even more attractive levels.

Three high-yield dividend shares that I think investors should look closer at are Telstra Corporation Ltd (ASX: TLS), Westpac Banking Corp (ASX: WBC), and Japara Healthcare Ltd (ASX: JHC). All three of these shares are trading at fair prices and provide above-average yields.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia owns shares of and has recommended Telstra 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.

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