The S&P/ASX 200 Index (ASX: XJO) was down 0.4% today when the clock struck 2:30pm AEDT.
As you're likely aware, that's when investors learned the latest interest rate decision just released by the Reserve Bank of Australia.
In the following minutes, the ASX 200 edged lower but regained that ground, still down 0.4% at the time of writing.
While markets had widely priced in another pause from the RBA, investors are still hoping to see the first rate cut from Australia's central bank since the last easing in November 2020. That's when the RBA slashed the official cash rate to the historic low of 0.10%.
But with the RBA opting to keep rates on hold today at 4.35%, investors will be waiting until at least 10 December, when the central bank meets next to see if there may yet be some rate relief before Christmas.
Here's what we learned today.
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ASX 200 stable amid RBA interest rate verdict
The ASX 200 remained fairly steady after the RBA board announced it would hold the cash rate at 4.35%. The interest rate paid on Exchange Settlement balances also remains unchanged at 4.25%.
The board noted substantial progress on headline inflation:
Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance. Headline inflation was 2.8% over the year to the September quarter, down from 3.8% over the year to the June quarter.
However, it's been a slower path down for underlying or trimmed mean inflation, the RBA's preferred measure. This takes out volatile items like fuel and electricity, which have seen prices come down partly due to government cost of living relief measures.
Underlying inflation came in at a still-too-hot 3.5% for the September quarter.
While this was forecast, the board noted it "is still some way from the 2.5% midpoint of the inflation target".
As for when ASX 200 investors can expect inflation to sustainably retrace to that midpoint, the RBA said it does not expect this to occur until 2026.
Commenting on the headwinds and tailwinds impacting the RBA's inflation battle, the board said:
Growth in output has been weak. Past declines in real disposable incomes and the ongoing effect of restrictive financial conditions continue to weigh on household consumption, particularly discretionary consumption.
However, growth in aggregate consumer demand, which includes spending by temporary residents such as students and tourists, has remained more resilient.
While Australia's labour market conditions were said to be easing, the RBA noted conditions "remain tight".
The board highlighted ongoing uncertainty about the path of household consumption and wages growth. Internationally, it said, "There remains a high level of uncertainty about the outlook abroad."
Looking ahead, the RBA concluded:
While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high.
Policy will need to be sufficiently restrictive until the board is confident that inflation is moving sustainably towards the target range.
What's next for Aussie interest rates?
ANZ Group Holdings Ltd (ASX: ANZ) had forecast that the RBA would keep the official cash rate on hold today.
As for when ASX 200 investors might expect the central bank to begin dialling rates back, ANZ noted (courtesy of The Australian Financial Review):
We continue to pencil in the first 25 basis point cut in February 2025. With the Q3 CPI showing trimmed mean inflation in line with what we infer to have been the RBA's forecast, we expect another shift toward a neutral stance by the RBA today.
The decline in trimmed mean inflation (six-month annualised trimmed mean inflation decreased 0.5 percentage points to 3.3 per cent) will not be enough in our view to convince the RBA it should begin the easing cycle this year, particularly as there does not appear to be an urgent need to support the labour market.
There you have it.
While a December interest rate cut isn't entirely out of the question, ASX 200 investors will more likely be waiting until 2025 for the RBA to join other global central banks on the easing path.
Despite the high interest rate environment, the benchmark index has gained more than 16% over the past 12 months.
