S&P/ASX 200 Index (ASX: XJO) investors look to have taken some heed of economists' hawkish forecasts. The benchmark index was down 0.4% ahead of the latest interest rate call by the Reserve Bank of Australia (RBA).
That announcement was released at 2:30pm AEDT.
At its meeting today, the RBA raised the official interest rate by 0.25%, taking it to 4.35%. The board also increased the interest rate paid on Exchange Settlement balances by 0.25%, lifting that to 4.25%.
The ASX 200 dropped more than 0.2% in the minute that followed the release to be down 0.7% before quickly regaining those losses and then some. At the time of writing, the benchmark index is down 0.2% for the day.
Prior to today, the last RBA rate hike came on 7 June, with the central bank having paused its hiking cycle since then as it judges the trajectory of inflation.
That five-month respite came after the RBA rolled out a series of 12 rapid interest rate hikes, commencing in May 2022. At the time, Australia's official cash rate stood at an all-time low 0.10%.
Here's what ASX 200 investors learned today.
What can ASX 200 investors expect from interest rates?
Explaining why the RBA opted to boost interest rates again this month, governor Michele Bullock said, "Inflation in Australia has passed its peak but is still too high and is proving more persistent than expected a few months ago."
She noted that goods price inflation continues to come down. However, she added that inflation for "many services are continuing to rise briskly".
And it looks like ASX 200 investors can expect rates to remain higher than previously expected.
According to Bullock:
While the central forecast is for CPI inflation to continue to decline, progress looks to be slower than earlier expected. CPI inflation is now expected to be around 3.5% by the end of 2024 and at the top of the target range of 2% to 3% by the end of 2025.
Bullock said the board opted to lift rates today "to be more assured that inflation would return to target in a reasonable timeframe".
And despite the Aussie economy growing at below-trend, Bullock noted economic growth "has been stronger than expected over the first half of the year".
She also pointed to ongoing increases in housing prices across the country, and a tight labour market, despite some easing conditions on that front, as continuing to stoke inflation.
Echoing her predecessors' words on productivity, Bullock noted that, "Wages growth has picked up over the past year but is still consistent with the inflation target, provided that productivity growth picks up."
And ASX 200 investors hoping for some assurances on where interest rates are going next were left wanting.
"There are still significant uncertainties around the outlook," Bullock said.
Those uncertainties include lags in the effect of monetary policy, the outlook for household consumption, and global issues like the outlook for the Chinese economy and international conflicts.
On that front, Bullock said:
Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.
She concluded that the RBA will do "what is necessary" to bring inflation back to its target range.
On the back of those words, ASX 200 investors are likely hoping that further tightening will prove to be unnecessary.
