What you need to know about the RBA's interest rate decision today

The Reserve Bank of Australia's (RBA) decision to keep interest rates on a record low has done little to lift sentiment on the market but it did spark a small rally in the Australian dollar.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Reserve Bank of Australia's (RBA) decision to keep interest rates on a record low has done little to lift sentiment on the market but it did spark a small rally in the Australian dollar.

The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index continued to wallow at a 0.5% loss on the news even as the Aussie bounced nearly 0.5% to trade at US72.2 cents on the news.

No one would be surprised by the RBA's announcement – it's the worst kept secret on the market – but there are a few interesting things I can gleam from the central bank's statement accompanying the cash rate decision.

The biggest standout to me is how upbeat the RBA sounds. Our conservative central bankers are looking at our economic environment with a "glass half full" perspective as they sounded more upbeat than they have in the past few statements and are tipping our economy to grow at a little over 3% in 2018 and 2019.

"In the first half of 2018, the economy is estimated to have grown at an above-trend rate," said RBA Governor, Philip Lowe.

"Business conditions are positive and non-mining business investment is expected to increase. Higher levels of public infrastructure investment are also supporting the economy, as is growth in resource exports."

The RBA also pointed out that global growth is continuing with "a number of advanced economies" expanding at an above-trend rate.

While it acknowledged that China is slowing, it seemed to be quietly confident that the Chinese government can manage the risk.

The second point of note is the increased focus on the Australian dollar, which has been weakening of late to fall to a 20-month plus low yesterday at below US72 cents. While nothing explicit was said, the sense I get is the RBA is happy with the weakening dollar as that helps with stimulating the local economy and getting inflation back to its normal band.

Inflation sits around 2% and the central bank is expecting this figure to rise in 2019 and 2020, although one-off factors will weigh on price rises in the September quarter with inflation tipped to drop to 1.75%.

The third key takeaway is that the RBA doesn't want to rock the boat. It's happy with the way things are going and it knows it needs interest rates to stay low to keep our economy on-track.

The fact that Westpac Banking Corp (ASX: WBC) and Suncorp Group Ltd (ASX: SUN) have lifted interest rates on mortgages also puts away what little pressure there is for the RBA to lift the official cash rate. Other banks are expected to follow Westpac's lead too.

The key risks to our economy are the uncertainty around household consumption, which is made worse by the drought, and the threat of a global trade war, according to the RBA, although it only made very brief mentions of the negatives.

After all, the RBA won't want to spook investors during this delicate phase of the economic cycle.

Low rates for as far as the eye can see is good news for income stocks. On that note, you might want to check out the best dividend paying stock picked by the experts at the Motley Fool.

Follow the free link below to find out what this stock is.

Motley Fool contributor Brendon Lau owns shares of Westpac Banking. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

More on Share Market News

Person pretends to types on laptop drawn in sand.
Share Gainers

Here are the top 10 ASX 200 shares today

ASX investors had a rough start to the week today.

Read more »

Happy man working on his laptop.
Broker Notes

Leading brokers name 3 ASX shares to buy today

Here's why brokers believe that now could be the time to snap up these shares.

Read more »

Two funeral workers with a laptop surrounded by cofins.
Broker Notes

Macquarie just forecast this ASX 300 dividend share could surge 37%. Here's why

Atop its passive income payouts, Macquarie expects this ASX dividend stock could leap 37% in a year.

Read more »

A person in a gorilla suit leaps really high holding a banana, nearly doing the splits.
Share Gainers

Up 1,238% in a year, why is this ASX gold stock surging again on Monday?

The ASX gold stock is now well into ten-bagger range and still rising fast today.

Read more »

A happy investor sits at his desk in front of his laptop and does the mexican wave with his arms to celebrate the returns from his ASX dividend shares
Share Gainers

Why EOS, Gorilla Gold, Lendlease, and OFX shares are charging higher today

These shares are starting the week on a positive note. But why?

Read more »

A young male investor wearing a white business shirt screams in frustration with his hands grasping his hair after ASX 200 shares fell rapidly today and appear to be heading into a stock market crash
Share Fallers

Why Appen, DroneShield, Gentrack, and New Hope shares are dropping today

These shares are starting the week in the red. But why?

Read more »

An unhappy man in a suit sits at his desk with his arms crossed staring at his laptop screen as the PointsBet share price falls
Materials Shares

Does Macquarie rate James Hardie shares a buy, hold or sell?

The company is set to report FY25 earnings this week.

Read more »

A man looking at his laptop and thinking.
Industrials Shares

Which ASX 200 industrials stock does Macquarie expect to sink 40% over the next 12 months?

Can this name build it's way out of such negative sentiment?

Read more »