Reserve Bank leaves door open to another rate cut

The prospect of another rate cut remains on the agenda.

Tom Richardson

Tom is a holder of the CFA Society of the UK administered Investment Management Certificate (IMC) and has more than a decade's professional experience in the investment management industry in Australia and the UK. Tom now works as a writer and editor for TMF Australia and has two easy to remember rules of investing he likes to follow. Avoid overpaying for growth stocks and avoid paying at all for stocks that are cheap for a reason. Tom prefers growth investing over value investing and says it's not rocket science, just avoid overpaying for the best returns.

Published October 16, 2013 3:58 pm AEDT

Mixed economic data at home and abroad resulted in the Reserve Bank sticking to its wait-and-see approach on monetary policy. The RBA does not meet in January and the chances of a move up or down before February look slim without significant or unexpected changes to the global macroeconomic environment.

"The Board's judgement was that, given the substantial degree of monetary stimulus that had been imparted, it would be prudent to leave the cash rate at the existing low level while continuing to gauge the effects," the minutes said.

One effect the RBA had been hoping to see more of is a falling dollar. Australia's manufacturing and tourism sectors continue to struggle. Only yesterday Toyota announced that 100 jobs were to be cut from its Melbourne plant, and unless the dollar falls further, the outlook for manufacturing and tourism remains tough.

Its concluding statement supported evidence that the RBA currently has a modest inclination towards another rate cut. "The Bank should again neither close off the possibility of reducing rates further nor signal an imminent intention to reduce them." The board also noted that economic growth remained "below trend" this quarter and is expected to remain "below trend over the next year or so before an expected pick-up."

Stocks likely to benefit from a continuing low-rate environment are reliable dividend payers with rock-solid earnings streams. The big four banks remain well supported as does Telstra (ASX: TLS) and supermarket giants Woolworths (ASX: WOW) and Wesfarmers (ASX: WES).

Another upshot of the low-rate environment has been rising house prices, as acknowledged in the board's minutes: "House prices increased by around 2.5 per cent over the September quarter and 5.5 per cent over the year." Residential developers have seen an upswing in valuations recently and should continue to profit from growing home prices. To take advantage of this trend investors could consider homebuilders like Mirvac (ASX: MGR), Stockland (ASX: SGP) or Australand (ASX: ALZ).

Foolish takeaway

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Motley Fool contributor Tom Richardson owns shares in Telstra.

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