03/12/13: Interest rates still on hold

…get used to it

As widely expected, the Reserve Bank of Australia decided this afternoon to keep interest rates at the historic low of 2.5 per cent.

In a statement released today, RBA Governor Glenn Stevens says uncertainty remains about the strength of economic growth outside of Australia's mining sector. "There has been an improvement in indicators of household and business sentiment recently, but it is still unclear how persistent this will be," he said. The RBA is also concerned about the economic impact of the persistently high value of the Australian dollar.

While improving economic data has prompted some economists to predict the RBA will raise rates late next year, the general consensus is that interest rates will remain low for some time and this has several implications for investors…

1) Continued low returns from cash and term deposits will attract investors to other assets with better cash flows, such as corporate debt, real estate investment trusts, various shares and unlisted non-residential property.

2) Government bonds will continue to generate very low returns.

3) Generally easy global and Australian monetary conditions through next year will help underpin further good gains in growth assets like shares.

The RBA will make its next interest rate decision in February, but don't hold your breath!  Rick Maggi (Westmount. Financial Solutions.)