RBA: Interest Rates Below Average, Upgrade to Shares

22/11/2012
Posted in Wealth
22/11/2012 Level One

Melbourne Cup Day saw the last meeting of the RBA. Punters were surprised by the RBA’s decision to hold the cash rate at 3.25% – just above the all-time low of 3.00% we saw at the height of the GFC.

RBA Governor Glenn Stevens has also stated that “Interest rates for borrowers have declined to be clearly below their medium-term averages and savers are facing increased incentives to look for assets with higher returns.”

Mr Stevens’ statement implies that the RBA has been feeling the pressure of being criticised by investors in term deposits for the severely low rates offered by the banks, and subsequent erosion of returns, and poses the suggestion that better value can be found in the share market.

We take this opportunity to reiterate our position on investing into blue chip Australian shares. The strong dividend yield of around 8-10% being paid by the banking and telecommunications sector at present, coupled with steady capital growth expected over the next 12 to 18 months, is especially appealing. The resource sector, in our opinion, has been oversold; hence share prices are cheap for large mining companies such as BHP and Rio Tinto. This provides excellent buying opportunities.

With another rate cut expected in December, we believe it is high time to take advantage of the value and income shares can provide for the medium to long term investor. Talk to us about improving your position or establishing a new portfolio today.

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