The Reserve Bank of Australia kept rates on hold at 1 per cent today and emphasised that all data points continue to suggest the local economy has turned for the worse over the last 12 months.
“Economic growth in Australia over the first half of this year has been lower than earlier expected, with household consumption weighed down by a protracted period of low income growth and declining housing prices and turnover,” the RBA governor noted.
However, it also flagged that the two 25 basis point rate cuts delivered in June and July 2019 had served to ‘turnaround’ Sydney and Melbourne house prices, although it thought “growth in housing credit remains low”.
Generally, outside the east coast capitals house prices have remained flat to lower.
Most professional analysts and economists are most focused on any guidance the RBA governor has on the direction of interest rates.
On this front the central bank again suggested it’s “reasonable to expect an extended period of lower rates”, without defining what constitutes an extended period.
It also suggested it could “ease monetary policy further if needed to support sustainable growth in the economy and the achievement of the inflation target over time.”
The Australian dollar is trading just about flat at US67.2c from where it was before the RBA’s announcement to suggest the dovish bias to monetary easing is just about what markets were expecting.
For share market investors little changes then other to remember that with benchmark lending rates at just 1 per cent and potentially going even lower dividend stocks will remain in favour.
One key point for investors to consider is how some of these businesses’ valuations could adjust if the outlook for the interest rate cycle turns on the back of strengthening inflation or other economic data points such as employment or wages growth.
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The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited, Telstra 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.