Is the outlook for ASX 200 shares in Q2 brighter since the RBA's interest rate decision?

ASX 200 shares are rallying for a second day on Wednesday. Here's why and what's next for the benchmark index.

| More on:

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

Key points
  • The S&P/ASX 200 Index is up 1.58% today following yesterday's astonishing 3.75% bump 
  • Macquarie says a bear market rally might already be underway 
  • Another expert says the lower rate rise is a positive for markets and the economy 

The S&P/ASX 200 (ASX: XJO) is up 1.58% today as the benchmark index enjoys a second day in the sun.

The ASX 200 was in a happy place yesterday, delivering its best performance in more than two years. The ASX 200 closed 3.75% higher at 6,699.3 points.

This followed the Reserve Bank of Australia's decision to raise interest rates by 0.25% — not the 0.5% that the market and many economists anticipated.

So, what does this mean for ASX 200 shares as we move forward into the second quarter of FY23?

A happy woman holding an umbrella in front of a rainbow.

Image source: Getty Images

What will ASX 200 shares do in Q2?

So, to recap, Q1 was kinda dismal for the ASX 200. Over the first three months of FY23, the index fell 1%.

Investors were taken on a rollercoaster through reporting season. Good news from individual companies was dampened by broader worries about inflation, interest rates, and a potential United States recession.

Given the market elation over yesterday's lower rate rise, one must assume that RBA interest rate decisions are going to directly determine how the ASX 200 performs in Q2 FY23.

Over to the experts to explain what might happen.

Lower rate rise 'positive for the markets'

Shaw & Partners senior investment adviser James Nicolaou says the RBA's decision might signal that the other rate increases this year are "starting to have the desired effect".

And that's "positive for the markets and economy," he says in The Australian.

Betashares chief economist David Bassanese said:

Unlike the US Federal Reserve, the RBA is thinking twice about pushing the economy into a recession it might not need to have.

Also in The Australian, top broker Macquarie said a "bear market rally" may have already started following the "dovish" RBA increase and weak US ISM Manufacturing data.

Why did the RBA choose a lower rate rise?

There are going to be lots of opinions in the media today about why the RBA chose to go 0.25% this time around. Why don't we go straight to the horse's mouth for a clearer insight?

In a statement yesterday, RBA Governor Philip Lowe said:

The cash rate has been increased substantially in a short period of time. Reflecting this, the Board decided to increase the cash rate by 25 basis points this month as it assesses the outlook for inflation and economic growth in Australia.

So, sounds like the board is happy to slow things down for a bit after a series of more aggressive hikes. And that's going to be good for ASX 200 shares if yesterday's reaction is anything to go by.

Are this year's rate hikes working to curb inflation?

So, let's review. Interest rates began to rise in May this year with an initial 0.25% bump. It was the first rate rise since November 2010. Yeah. Major.

The RBA then bumped up rates by 0.5% every month until yesterday's 0.25% decision. So, the official cash rate is up 2.5% in six months.

The banks are largely passing on every hike in full to borrowers. So, on the average Australian mortgage of $600,000, borrowers are now paying more than $1,250 extra per month in interest. Eek.

You'd think that would be more than enough to disrupt most household budgets and cause a change in spending.

But we don't know the impact yet, as inflation continues to rise for now. There's a lag effect with these things.

Time will tell.

Motley Fool contributor Bronwyn Allen has positions in Macquarie Group Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on ASX Share Market News

A female sharemarket analyst with red hair and wearing glasses looks at her computer screen watching share price movements.
ASX Share Market News

5 things to watch on the ASX 200 on Thursday

It is a big day for Aussie investors on Thursday. Here's what you need to know.

Read more »

Five young people sit in a row having fun and interacting with their mobile phones.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a Wednesday that left investors wanting today.

Read more »

Buy, hold, and sell ratings written on signs on a wooden pole.
Opinions

With cash profits jumping to $11 billion, are CBA shares now a buy, hold or sell?

CBA enjoyed a very profitable FY 2026. But is the ASX 200 bank stock a buy for FY 2027?

Read more »

Red buy button on an Apple keyboard with a finger on it.
Broker Notes

Up 73%! 3 reasons I'd still buy Mineral Resources shares today

A leading expert forecasts more outperformance from Mineral Resources' surging shares.

Read more »

Friends in a 4WD.
Broker Notes

Following its results, Macquarie is tipping 80% upside for this ASX 300 stock

This parts supplier appears primed for share price growth.

Read more »

A young woman lifts her red glasses with one hand as she takes a closer look at news.
ASX Share Market News

Why CBA, Seek, and AGL shares are turning heads on Wednesday

Investors are rushing to sell up one of these stocks.

Read more »

Man looks shocked as he works on laptop on top a skyscraper with stockmarket figures in graphic behind him.
ASX Share Market News

Imagine the ASX 200 near-tripling in a year. That's what the KOSPI did in FY26

Then came last month's 44% crash. Here's the full story behind the KOSPI's boom and bust.

Read more »

Happy mum and dad with daughter smiling on couch after relocation to new home.
Broker Notes

After crashing 19% this broker says Life360 shares are a buy

Investors should consider buying the dip after yesterday's sell-off.

Read more »