Australia's official interest rate was left on hold on Tuesday.
Announcing why the RBA had opted to keep the official cash rate on hold at 4.10%, 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."
With the RBA pause widely expected, the reaction on the ASX was subdued. The S&P/ASX 200 Index (ASX: XJO) edged higher on the news but still closed the day in the red.
ASX investors may have been cautious, as Lowe concluded that, "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 benchmark interest rate now?
Here's the latest outlook from National Australia Bank Ltd (ASX: NAB).
What now for the interest rate?
Speaking at an Australian Lebanese Chamber of Commerce event in Sydney yesterday, NAB CEO Ross McEwan stressed the importance of getting the inflation genie back in its bottle.
"Around 35% of Australians are impacted by interest rate increases, while 100% are impacted by increasing cost of living," he said.
McEwan noted that the Aussie economy had clearly slowed since last year.
"We saw that show up yesterday in GDP data. The impact of 12 cash rate increases is being felt. It was a good thing that the Reserve Bank held interest rates at 4.1% this week."
So, when might the ASX 200 get a boost from lower interest rates?
According to McEwan:
It feels to me that interest rates have reached the top of the cycle, with at worst possibly one more move up. Around mid-next year we're looking at rates starting to decline and getting the economy moving again.
While inflation is still well above the RBA's 2% to 3% target range, McEwan explained, "There is always a lag as rate changes work their way through an economy."
He said this has probably been exacerbated by the big leap in fixed-rate loans as the RBA began its tightening cycle.
McEwan pointed out that:
This means that while high inflation has hit all households for the past 18 months, rate changes for homeowners have taken longer to impact household budgets. And some still haven't come through.
NAB's forecast is broadly in line with the interest rate expectations from Commonwealth Bank of Australia (ASX: CBA). CBA expects ASX 200 investors will see the first rate cuts from the RBA next March.
