If history repeats itself, tomorrow could mark the beginning of a big year for S&P/ASX 200 Index (ASX: XJO) shares.
Investors will be carefully watching the Reserve Bank of Australia (RBA) tomorrow. That's when the central bank announces its next interest rate decision.
Now the odds of an RBA rate cut tomorrow have fallen to virtually zero.
But even a dovish shift in language could be enough to boost ASX 200 investor sentiment.
And while it may not happen tomorrow, most analysts are still expecting several rate cuts from the central bank before the end of the year.
Commonwealth Bank of Australia (ASX: CBA) economist Gareth Aird isn't forecasting a cut tomorrow. However, he said (quoted by The Australian Financial Review), ""We continue to expect an easing cycle commencing in September."
CBA forecasts the RBA will cut rates by 0.75% over the final months of 2024 and another 0.75% in the first half of 2025. That would see the official cash rate back down at 2.85% from the current 4.35%.
Here's what history tells us happens when the RBA begins to ease off on interest rates.
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ASX 200 and the RBA's historic rate cycle
In early September 2008, Australia's official interest rate stood at 7.25%.
The ASX 200, and shares across the world, had been plunging for the better part of a year in the midst of the GFC.
September 2008 saw the first of a rapid series of rate cuts from the RBA. With a final cut of 0.25% on 8 April 2009, the cash rate was slashed to 3.00%.
Although there was as significant lag involved before the ASX 200 bottomed in March 2009, the benchmark index then soared more than 50% before the next tightening cycle commenced on 7 October 2009.
That tightening cycle ran through 1 November 2011, when the official cash rate stood at 4.75%.
During the course of that increasing rate cycle, from October 2009 through to November 2011, the ASX 200 lost 12%.
November 2011 then saw the RBA cut rates by 0.25% in an easing cycle that would last all the way until May 2022, when the central bank raised rates from the rock bottom, post pandemic low of 0.10%.
From November 2011 through to May 2022, during this decade-plus of ever lower interest rates, the ASX 200 gained more than 72%.
Which is why if history repeats tomorrow (or on a Tuesday when the RBA reports later on this year) could mark the beginning of a lengthy run higher for the Aussie share market.
