MENU

Three things you need to know about the RBA’s interest rate decision today

The Reserve Bank of Australia’s (RBA) decision to sit on record low-interest rates for the 22nd straight meeting has done little to lift the mood of investors but that doesn’t mean our central bankers didn’t have anything interesting to say.

The S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index remained 0.4% in the red after the release of the RBA’s statement this afternoon while the Australian dollar firmed a little to just under US74 cents.

While the rate decision won’t surprise anyone, there are three things the RBA is thinking that every investor should be aware of.

The first is the RBA is in no rush to join its counterparts in other developed economies to tighten monetary policy (meaning lift rates). The market is only pricing in a rate rise in late 2019 or early 2020 and I suspect even the RBA board doesn’t know when it can lift rates.

This is good news for high dividend stocks that have to rely on their yield to pull in investors. This may be why so called-bond proxies like Sydney Airport Holdings Pty Ltd (ASX: SYD), Transurban Group (ASX: TCL) and Spark Infrastructure Group (ASX: SKI) enjoyed an afternoon rebound.

The second key point is that the RBA actually has a pretty upbeat outlook on the economy – not that this is enough for it to move on rates. The central bankers acknowledged that our economy is firing on almost all its cylinders with business conditions and non-mining investments on a positive footing.

Spending on public infrastructure, a promising outlook for the labour market with the unemployment rate tipped to drop to 5% over the coming years and growth in resource exports adding to the positive picture.

The only source of weakness it seems is the uncertain outlook for household consumption as consumers are struggling with high debt levels, falling house prices and weak wage growth.

Household consumption may be the interest rate trigger for the RBA as it feels like the central bank won’t have much of an excuse not to join the global trend of higher rates without this source of uncertainty.

It’s worth noting here that the bank is expecting inflation to pick up over the next two years but growth will largely remain the same in 2019. This adds to the case for a rate increase.

Of course, US President Donald Trump is also contributing to economic uncertainty, a fact acknowledged by the RBA for the second month. The only difference is that the US international trade policy is clouding the global outlook, whereas the bank only referenced China at last month’s meeting.

The third takeaway is the RBA’s comments that the banking system isn’t working as well as it could. The higher rates in money markets would normally feed through to higher bank deposit rates but the big banks are keeping the difference to pad margins as they resist lifting mortgage rates.

The RBA can’t be happy about this as it will complicate its efforts to rebalance the economy by pulling on the interest rate lever in the future.

We saw a similar thing happen during the GFC when banks around the world didn’t necessarily pass on the full interest rate cuts from their respective central banks, which forced a number of them to use more unconventional tools to adjust monetary policy.

In this lower for longer rate environment, three blue-chip stocks stand out as a good buying opportunity, according to the experts at the Motley Fool.

Click on the free link below to find out what these stocks are and why they should be on your radar in FY19.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool's in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool's Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand - and how quickly the share prices of these companies moves - we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited and Transurban Group. 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 Scott Phillips.

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.