Yesterday S&P/ASX 200 Index (ASX: XJO) investors learned that the Reserve Bank of Australia decided to hold the official interest rate at 4.35%.
Australia's cash rate has been held steady at this level since November 2023. That month marked the last RBA interest rate hike, with a 0.25% boost.
Yesterday's move was widely anticipated, and the ASX 200 held steady on the news, finishing the day up 0.4%.
Commenting on the RBA's efforts to get inflation back within its 2% to 3% target range, governor Michele Bullock said, "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."
But she cautioned:
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.
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RBA follow-up comments
At a press conference following the RBA announcement, Bullock threw cold water on the growing market consensus that ASX 200 investors would enjoy at least one interest rate cut in 2024.
"We are not ruling anything in or out, but vigilance is to the upside," she said (quoted by The Australian Financial Review). "The fact is that the progress on bringing inflation down has been very slow for a year now."
Bullock added:
What I'm trying to tell the markets today is that I think probably expectations for interest rate cuts are a little bit ahead of themselves…
The board's feeling is that in the near term, by the end of the year … given what the board knows at the moment, and given what the forecasts are, that doesn't align with their thinking about interest rate reductions.
But not everyone is convinced that the bank won't bring forward rate cuts significantly sooner than it's currently signalling.
CBA forecasts a 2024 RBA interest rate cut
Despite Bullock's hawkish post-announcement remarks, Carol Kong, an economist at Commonwealth Bank of Australia (ASX: CBA), said her team still saw rate relief coming this year.
"Nevertheless, our Australian economics team retains their view that the economic data will continue to evolve in a way that sees the RBA cut the cash rate in November," Kong said (quoted by the AFR).
Commenting on the prospect that the ASX 200 could get a boost from lower interest rates this year, Josh Gilbert, market analyst at eToro, had this to say:
There were question marks recently surrounding another hike, however, the RBA's case to hike has slowly wilted away recently. Unemployment rose, GDP data in Q1 was weak, and inflation was almost in line with the board's projections.
Markets are pricing in a full cut by the end of this year. For now, that seems slightly optimistic, but not entirely out of the question.
Gilbert added that "sharper-than-expected rate cuts from the Fed may open the door for the RBA to ease monetary policy sooner than anticipated".
Bank of Queensland Ltd (ASX: BOQ) chief economist Peter Munckton, meanwhile, thinks mortgage holders and ASX 200 investors will need to be a little more patient for that first RBA interest rate cut.
The Bank of Queensland has pencilled in February for the first RBA easing.
According to Munckton:
Economic growth was very weak in the first half of the year. Improvement is likely in the second half, although unlikely to be by enough to stop further deterioration in the jobs market.
This deterioration should allow inflation to moderate further. Global economic growth will likely be sub-trend, with declining inflation and falling global cash rates.
Stay tuned!
