The S&P/ASX 200 Index (ASX: XJO) was already down 0.5% when the clock struck 2:30pm AEST.
Then the Reserve Bank of Australia (RBA) released its latest interest rate decision. And the ASX 200 plunged another 0.7% over the following minutes, taking its daily loss to 1.2%. It's currently down 1% at the time of writing.
Investors hit the sell button after the RBA board announced yet another 0.25% increase in interest rates. That lifts Australia's official cash rate to 4.1%.
Atop lifting the cash rate, the RBA board also increased the interest rate on Exchange Settlement balances by another 0.25% to the new 4%.
Unlike May's rate hike, which caught ASX 200 investors by surprise, consensus expectations had been building to another boost in the official cash rate today.
Odds of a rate hike increased sharply after the ABS revealed the monthly Consumer Price Index (CPI) indicator increased by 6.8% in the year to April, above consensus forecasts of 6.4% and higher than the prior month's inflation print.
But those expectations haven't stopped the ASX 200 from a steep sell-off.
Today's rate hike marks the 12th lift from the RBA since the first increase on 3 May 2022, when rates still stood at an all-time low 0.1%. The only breather the central bank has taken was to pause in April.
With rates now at 4.1%, investors can expect some ASX 200 shares to come under renewed pressure.
Why did the RBA lift the cash rate again?
Explaining why the board increased the cash rate again, RBA governor Philip Lowe echoed his words from last month.
"Inflation in Australia has passed its peak, but at 7% is still too high and it will be some time yet before it is back in the target range," he said.
With rates now at 4.1%, Lowe said this will "provide greater confidence that inflation will return to target within a reasonable timeframe".
With the central bank's target for inflation falling in the 2% to 3% range, it may be some time before we see a relief rally on the ASX 200 following news of lowered interest rates.
Explaining the urgency to get the inflation genie back in the bottle, Lowe said:
If high inflation were to become entrenched in people's expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment.
Lowe noted that "the upside risks to the inflation outlook have increased".
"While goods price inflation is slowing, services price inflation is still very high and is proving to be very persistent overseas," he said.
And the RBA remains concerned over wage increases potentially spurring inflation amid the low productivity growth of the past few years.
"Unit labour costs are also rising briskly, with productivity growth remaining subdued," Lowe said.
That observation is also unlikely to inspire any kind of rally on the ASX 200, where shareholders will be hoping to see their stocks deliver increased productivity without major wage increases.
Lowe continued:
The board remains alert to the risk that expectations of ongoing high inflation contribute to larger increases in both prices and wages, especially given the limited spare capacity in the economy and the still very low rate of unemployment.
What can ASX 200 investors expect now?
As for what ASX 200 investors can expect moving forward, Lowe said the RBA "is still seeking to keep the economy on an even keel as inflation returns to the 2% to 3% target range".
But as he's cautioned before, Lowe noted that "the path to achieving a soft landing remains a narrow one".
So, will the ASX 200 have to endure another rate lift in 2023?
Maybe.
According to Lowe:
Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve.
