The S&P/ASX 200 Index (ASX: XJO) recovered from the past two days of sharp selling and was up 0.5% at 2:30pm AEST.
As you're likely aware, that was when the Reserve Bank of Australia (RBA) released its latest interest rate announcement.
In the minutes following that announcement, the ASX 200 edged lower but remains up 0.4% at the time of writing.
The RBA first began hiking interest rates back in May 2020. At the time, the official cash rate stood at a rock bottom of 0.10% as the central bank sought to stoke stubbornly missing inflation.
Having more than succeeded in those efforts and seeing inflation take off well past its 2% to 3% target range, the RBA commenced a series of 13 interest rate hikes. The last increase came in November 2023, which brought Australia's cash rate to the current 4.35%.
Fears that the RBA would hike interest rates again today had largely abated over the past week amid signs of moderating inflation and with global stock markets tumbling over the past few days.
But few ASX 200 investors were expecting an interest rate cut today.
And indeed, there was none forthcoming.
Here's what we learned from the RBA today.
ASX 200 holds gains on RBA interest rate call
The ASX 200 is holding onto its intraday gains after the RBA opted to hold the cash rate steady at 4.35%. The interest rate paid on Exchange Settlement balances also is unchanged at 4.25%.
Commenting on the decision, the board noted that "Inflation has fallen substantially since its peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance."
However, with inflation "still some way above" the midpoint of the RBA's 2% to 3% target range, a rate cut today was not on the table.
Underlying inflation, which takes out certain volatile items like fuel and travel, increased 3.9% in the June quarter, broadly in line with the RBA's own forecasts.
But the board expressed concern over the persistence of inflation in Australia.
According to the RBA:
In year-ended terms, underlying inflation has now been above the midpoint of the target for 11 consecutive quarters. And quarterly underlying CPI inflation has fallen very little over the past year.
ASX 200 investors hoping for more certainty on what to expect from interest rates in the months ahead were left wanting, with the board noting that "the outlook remains highly uncertain".
"The central forecasts set out in the latest SMP are for inflation to return to the target range of 2% to 3% late in 2025 and approach the midpoint in 2026. This represents a slightly slower return to target than forecast in May."
But the RBA noted risks, adding:
There is substantial uncertainty around these forecasts. Revisions to consumption and the saving rate in the most recent National Accounts, high unit labour costs and the persistence of inflation – particularly in the services sector – suggest there are upside risks to inflation.
Wages growth appears to have peaked but is still above the level that can be sustained given trend productivity growth.
The lag in the impact that monetary policies have on inflation and uncertainties about overseas economies add to the ambiguity of when interest rates might finally start to fall.
And as ASX 200 investors have come to expect, the RBA again stressed that it is "resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome".
