RBA leaves the cash rate unchanged at 1.5%: What now for income investors?

As was widely expected, the Reserve Bank of Australia has elected to leave the cash rate unchanged at the record low of 1.5% for another month.

This was not at all a surprise because, as I mentioned here earlier today, the ASX 30 Day Interbank Cash Rate Futures December 2018 contract was trading at 98.505 on November 30. This indicated that the market had a 0% expectation of an interest rate increase to 1.75% at December’s meeting.

What did the Reserve Bank say?

The central bank is happy with economic growth, stating: “The Australian economy is performing well. The central scenario is for GDP growth to average around 3½ per cent over this year and next, before slowing in 2020 due to slower growth in exports of resources.”

Although it spoke positively about business conditions, non-mining business investment, and infrastructure investment, it does have concerns over household consumption.

The bank said: “One continuing source of uncertainty is the outlook for household consumption. Growth in household income remains low, debt levels are high and some asset prices have declined. The drought has led to difficult conditions in parts of the farm sector.”

However, the bank is upbeat on employment, saying: “The outlook for the labour market remains positive. The unemployment rate is 5 per cent, the lowest in six years. With the economy expected to continue to grow above trend, a further reduction in the unemployment rate is likely.”

The RBA is expecting inflation to increase over the next couple of years, albeit gradually. It said that: “Inflation remains low and stable. Over the past year, CPI inflation was 1.9 per cent and in underlying terms inflation was 1¾ per cent. Inflation is expected to pick up over the next couple of years, with the pick-up likely to be gradual. The central scenario is for inflation to be 2¼ per cent in 2019 and a bit higher in the following year.”

The bank then finished by saying: “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 unlikely to be increased any time soon, I think income investors ought to look beyond savings accounts and term deposits to the share market.

For example, I feel dividend shares such as National Storage REIT (ASX: NSR), Rural Funds Group (ASX: RFF), WAM Capital Limited (ASX: WAM), and Westpac Banking Corp (ASX: WBC) all trade at attractive prices and offer generous yields.

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. The Motley Fool Australia has recommended National Storage REIT. 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.

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