ASX 200 rocketing higher on RBA interest rate decision

The ASX 200 surged higher on the latest RBA interest rate announcement. But why?

| More on:
Man smiling at a laptop because of a rising share price.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The S&P/ASX 200 Index (ASX: XJO) is soaring higher on the heels of this afternoon's interest rate announcement from the Reserve Bank of Australia (RBA).

The benchmark Aussie index was up 0.8% at 2:30pm AEST. In the minutes that followed, the index rocketed up another 0.5% to currently be up 1.3% for the day.

This came after the RBA reported that it was holding Australia's official interest rate steady at 4.35%. The interest rate paid on Exchange Settlement balances was also unchanged at 4.25%.

The gains posted by the ASX 200 are somewhat muted as the pause was widely priced into the markets. Though analysts have been upping the odds of a potential rate hike from RBA amid sticky inflation.

While the rapid series of 13 rate hikes instituted by the central bank since May 2022 has brought inflation down from the near 8% levels witnessed at the end of 2022, we're not out of the woods quite yet.

Here's what's happening.

RBA interest rate announcement boosts ASX 200 shares

Commenting on the decision to keep rates on hold that looks to be buoying ASX 200 investor sentiment, the RBA board noted that while data shows inflation Down Under continues to moderate, it's not coming down as fast as the RBA had been forecasting.

The consumer price index (CPI) increased 3.6% over the year to the March quarter. That's down 4.1% from the increase recorded over the year to December. But it remains above the RBA's target range of 2% to 3%.

Of potential concern for ASX 200 investors awaiting a rate cut, the board highlighted that underlying inflation was higher than headline inflation and declined by less. This was largely driven by services inflation, which the board says "remains high and is moderating only gradually".

While higher interest rates have been working, the RBA said there's continuing excess demand in Australia's economy.

As for the labour market and wages, the board said:

Conditions in the labour market have eased over the past year but remain tighter than is consistent with sustained full employment and inflation at target. Wages growth appears to have peaked but is still above the level that can be sustained given trend productivity growth. 

What can investors expect ahead for interest rates?

Whether ASX 200 investors can expect interest rates to rise, fall or remain steady over the rest of the year remains highly uncertain.

"The economic outlook remains uncertain and recent data have demonstrated that the process of returning inflation to target is unlikely to be smooth," the RBA said.

The RBA's central forecasts are for inflation to return to its 2% to 3% target range in the second half of 2025 and to the midpoint of that range in 2026. 

The enduring services inflation was flagged as a key uncertainty. The board expects services inflation to ease more slowly than it previously forecast.

And, in case ASX 200 investors want any more uncertainty, the board added:

There also remains a high level of uncertainty about the overseas outlook. While there has been improvement in the outlook for the Chinese and US economies, and many global commodity prices have picked up, geopolitical uncertainties, including those related to the conflicts in the Middle East and Ukraine, remain elevated.

Reiterating the RBA's resolution to return inflation to its target range, the board cautioned it believes it will be "some time yet" before this happens. The members added they "will remain vigilant to upside risks".

So, could the ASX 200 be hit with another rate hike ahead?


According to the board:

The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the board is not ruling anything in or out.

Invest accordingly.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Young woman using computer laptop with hand on chin thinking about question, pensive expression.

Should you buy Telstra stock on a pullback?

Is this telco a buy for value hunters?

Read more »

two men in hard hats and high visibility jackets look together at a laptop screen that one of the men in holding at a mine site.
Share Fallers

Why did the Core Lithium share price just crash 6%?

Investors are bidding down the Core Lithium share price today.

Read more »

Sports fans looking at smart phone representing surging pointsbet share price
Share Gainers

Guess which ASX All Ords share just rocketed 25% on an earnings upgrade

Investors are bidding up the ASX All Ords share following an improved FY 2024 earnings outlook.

Read more »

Young man sitting at a table in front of a row of pokie machines staring intently at a laptop. looking at the Crown Resorts share price
Mergers & Acquisitions

Are Star shares now rolling the dice on a rescue bid?

Rumour is that a US-based casino operator is ready to revamp this fallen star.

Read more »

A man closesly watch a clock, indicating a delay or timing issue on an ASX share price movement
Mergers & Acquisitions

BHP shares charging higher as the clock ticks down on the Anglo American takeover

BHP has less than three days before the clock runs down on its $64 billion Anglo American takeover bid.

Read more »

A bored woman looking at her computer, it's bad news.
Share Market News

These are the 10 most shorted ASX shares

Let's see which shares short sellers are targeting this week.

Read more »

A cool young man walking in a laneway holding a takeaway coffee in one hand and his phone in the other reacts with surprise as he reads the latest news on his mobile phone
Broker Notes

Morgans says these ASX stocks can rise 20% (and pay big dividends!)

The broker believes some very big returns could be on the cards over the next 12 months.

Read more »

A happy male investor turns around on his chair to look at a friend while a laptop runs on his desk showing share price movements
Share Market News

5 things to watch on the ASX 200 on Monday

A positive start to the week is expected for Aussie investors.

Read more »