S&P/ASX 200 Index (ASX: XJO) investors will be paying close attention at 2:30pm AEST next Tuesday.
That's when the Reserve Bank of Australia (RBA) makes its next interest rate announcement. And it will be the last time we hear that announcement from outgoing chair Philip Lowe.
On 1 August, the ASX 200 shot up 0.5% in the minutes that followed the RBA's announcement that it was keeping rates on hold for the month.
With inflation continuing to trend lower, the central bank held Australia's official cash rate at 4.1%.
That marked the third pause in rate hikes since the RBA began to aggressively tackle inflation, increasing interest rates 12 times since May 2022. Back then, the official cash rate stood at a very appealing 0.1%!
This week's Consumer Price Index (CPI) data from the Australian Bureau of Statistics (ABS) lends further support for another pause on Tuesday. And the ASX 200 notched fresh two-week highs following the release of that report.
The July annual CPI increase came in at 4.9%, down from 5.4% in June. Annual inflation peaked in December at an eye-watering 8.4%.
The decline in underlying inflation, which excludes volatile price changes in things like automotive fuel, fruit and vegetables, and holiday travel was more modest. Underlying annual inflation fell from 6.1% in June to 5.8% in July.
While trending lower, both metrics are still well above the RBA's inflation target of 2% to 3%.
And last month, Lowe did caution, "Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe."
So, what can ASX 200 investors expect from the RBA next week?
What's ahead for the ASX 200 and interest rates?
A growing cadre of analysts are forecasting that Australia may well have hit peak rates for this cycle.
Among them, the head of market analysis at Vantage Australia, Jeffrey Triganza.
According to Triganza:
Looking at this month-to-month, not much has changed since the RBA paused rates in August. At the same time, underlying inflation has started to come down, showing that previous interest rate hikes have made an impact.
To quote Newton's first law, the RBA is likely to take the path of least resistance here and lean towards another pause in September.
He also pointed to the rather bullish attitudes in the futures market.
"We're seeing this sentiment in the futures markets too, which has priced in little to no chance of a hike between now and mid-2024," Triganza said.
As for when ASX 200 investors might expect further reprieve in the form of rate cuts, Triganza doesn't advise holding your breath.
"It is unlikely we'll see any rate cuts until mid-2024 when inflation has come down much further," he said.
The top economists at all the big four ASX 200 banks are also forecasting a pause from the RBA next week.
