The Reserve Bank of Australia (RBA) interest rate announcement was released at 2:30pm AEST.
And the S&P/ASX 200 Index (ASX: XJO) initially slid before recouping those losses.
Just before the RBA decision was reported, the ASX 200 was down 0.3%. In the minutes that followed, the ASX 200 dropped to a 0.4% loss.
The ASX 200 slipped despite the RBA board announcing that the central bank was keeping interest rates on hold in August.
That leaves Australia's official cash rate at 4.10% and the interest rate on Exchange Settlement balances at 4.00%.
This marks the fourth pause in RBA interest rate hikes since it began a series of 12 increases in May 2022 to combat runaway inflation.
While that pause is welcome, it was also widely priced into the markets. Hence the reaction from ASX 200 investors on the news is rather muted.
Why is the RBA interest rate unchanged?
Explaining why the RBA held fire in August, outgoing governor Philip Lowe said, "The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so."
Holding fire for another month, Lowe said, will provide the RBA "further time to assess the impact of the increase in interest rates to date and the economic outlook".
But ASX 200 investors take note. Lowe also noted that despite declining again in July, "inflation is still too high and will remain so for some time yet".
The central bank expects CPI inflation to continue to decline. But it likely won't return to the RBA's 2% to 3% target range until late 2025. Meaning it may be some time before we see interest rates materially come down.
Lowe also reiterated the importance of increasing productivity to help cap inflation and stave off another RBA interest rate hike:
Given that the economy and employment are forecast to grow below trend, the unemployment rate is expected to rise gradually to around 4.5% late next year. Wages growth has picked up over the past year but is still consistent with the inflation target, provided that productivity growth picks up.
And the RBA won't shirk from its priority goal of taming inflation.
"Returning inflation to target within a reasonable timeframe remains the board's priority. High inflation makes life difficult for everyone and damages the functioning of the economy," Lowe said.
He also cited "significant uncertainties around the outlook" for things like services price inflation, the lags in the effect of monetary policy, and the outlook for household consumption.
So, what can ASX 200 investors expect from the RBA interest rate decisions heading forward?
Well, most likely some more uncertainty for the months ahead.
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 continue to depend upon the data and the evolving assessment of risks.
