S&P/ASX 200 Index (ASX: XJO) investors were spared another interest rate hike in December when the Reserve Bank of Australia (RBA) opted to keep the official cash rate on hold at 4.35%.
Although the pause was widely expected amid slowing inflation data, the ASX 200 gained 0.3% immediately following the announcement.
While some stocks can perform well in a high interest rate environment, others struggle with increased borrowing costs. Higher bank deposit rates (with far lower risks than stock markets) also tend to draw some funds out of the ASX 200.
December's pause from the RBA came following a somewhat unexpected 0.25% increase in November. This saw Australia's cash rate hit the highest levels since November 2011.
Somewhat amazingly, it was only in May 2022 that the benchmark interest rate had been slashed to the all-time low of 0.10%. That was back when most of the world's central bankers were worried about the dread spectre of deflation.
Hmm.
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Is an interest rate cut on the horizon for ASX 200 investors?
With high rates having a sizeable impact on the performance of many ASX 200 shares, when might we see them come down?
Pointing to the data dependency highlighted in the RBA's December minutes, Adam Boyton, head of Australian economics at Australia and New Zealand Banking Group Ltd (ASX: ANZ) expects investors have seen peak rates in the current cycle.
According to Boyton (quoted by The Australian Financial Review):
The line 'there had been encouraging signs of progress towards the Board's objectives and that this needed to continue' does give these minutes a little more optimism versus recent months.
But he believes ASX 200 investors will need some patience, predicting the first RBA interest rate cut won't arrive until November.
"Rate cuts remain some distance off, with tax cuts from July 2024 and a likely additional discretionary fiscal easing to come first," Boyton said.
ANZ's view that we have reached the peak cash rate in Australia is shared by the economists at Westpac Banking Corp (ASX: WBC) and Commonwealth Bank of Australia (ASX: CBA).
Only National Australia Bank Ltd (ASX: NAB) is predicting another RBA interest rate increase early in 2024.
