If you're investing in S&P/ASX 200 Index (ASX: XJO) shares, you're likely aware of the impact interest rates can have on the market's performance.
You need look no further than this past Tuesday for a timely reminder.
On Tuesday, the Reserve Bank of Australia (RBA) opted to hold the official cash rate steady at 4.10%. This marked the second consecutive monthly pause from the central bank, which began aggressively hiking rates in May 2022 to combat soaring inflation.
Although a pause had been increasingly expected, relieved investors sent the ASX 200 soaring 0.5% in the minutes following the RBA's announcement.
Outgoing governor Philip Lowe said that higher interest rates were working to bring down price rises. "Inflation in Australia is declining but is still too high at 6%," he said.
Leaving the door open for another potential rate hike in the months ahead, Lowe added, "Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe."
We'll have to wait and see if another rate hike is on the cards yet.
But the bigger question is, when can ASX 200 investors expect rates to start coming down?
When can ASX 200 investors expect the RBA to cut interest rates?
For some broader insight into that answer, we turn to some of Australia's leading economists.
Westpac Banking Corp (ASX: WBC) chief economist Bill Evans expects falling inflation and rising unemployment likely spells the end of the RBA's tightening cycle following this week's pause.
He forecasts ASX 200 investors will see the first rate cut from the central bank towards the third quarter of next year.
"The next move is now likely to be the first cut in the cycle, which is forecast for the September quarter of 2024," Evans said (courtesy of The Australian Financial Review).
Evans added:
Going into [Tuesday's] meeting, we assessed that the best approach would be to hike and maintain the tightening bias. As the evidence of the weakening spending continues to build, the case for raising rates becomes progressively more difficult.
But before you break out the bubbly, ANZ Group Holdings Ltd (ASX: ANZ) head of Australian economics, Adam Boyton, believes ASX 200 investors won't be seeing any interest rate cuts before November 2024, at the earliest.
"If the bank does move in the near term, or even in the first half of 2024, higher interest rates are much more likely than cuts," Boyton said.
National Australia Bank Ltd (ASX: NAB) chief economist Alan Oster forecasts one more rate hike from the RBA in November. ASX 200 investors will then have to wait until next August for the first rate cut as the economy slows.
After the forecast rate cut next August, Oster said (quoted by the AFR):
From there, we see gradual cuts of 25 basis points at each meeting which, due to the RBA's revised schedule of eight meetings per year, should see the cash rate to return to around 3 per cent in early 2025.
