The S&P/ASX 200 Index (ASX: XJO) is up a healthy 1.0% during the Tuesday lunch hour.
Australia's benchmark index initially edged lower following the 11:30am AEST release of the Reserve Bank of Australia's minutes from its 5 November interest rate policy meeting. But it has since regained those losses and then some.
At its last meeting, the RBA decided to hold the official cash rate steady at 4.35%. That means ASX 200 investors will have to wait until at least 10 December, when the RBA makes its next rate call, for any potential easing.
Here's what the central bank's minutes tell us.
What happened at the RBA's November meeting?
During the meeting, the RBA members agreed that their central forecast for global economic growth had not changed significantly over the prior three months.
They said that recent stimulus measures announced by the Chinese government had reduced some of the downside risks they saw for growth in China. However, that may not offer a big boost for the ASX 200, as the board noted:
The implications for Australia could be more modest than in the past because the capacity of the mining sector to increase Australia's volume of mineral exports was limited.
The RBA also discussed the potential impacts on its inflation battle and Australia's economic outlook from "a marked change in US economic policy following the US presidential election". The US election results were not known until after the RBA's 5 November interest rate decision.
Members noted that, "Whatever the election outcome, US fiscal deficits were forecast to be large, making sovereign debt markets more sensitive to adverse shocks over time."
As for the Aussie economy's impact on inflation, interest rates and a range of ASX 200 stocks, the RBA said, "GDP growth had been subdued in the June quarter but looked to have picked up since then."
Board members still expect a sustained pick-up in household consumption from the second half of 2024 amid rising real household incomes. But this is now expected to occur "a little later" than the board expected in August.
When might ASX 200 investors expect an interest rate cut?
In a sign that the next interest rate cut may yet be a ways off, the RBA judged that labour market conditions remain tight relative to full employment.
According to the minutes:
While conditions had continued to ease gradually, and the unemployment rate had drifted upwards as expected, employment growth had been strong and a number of indicators – including measures of underemployment, youth unemployment, job advertisements and surveys of labour availability – suggested that the easing in the labour market might have begun to stall or modestly reverse.
And ASX 200 investors will likely be contending with inflation above the RBA's 2% to 3% target range for at least another year.
The minutes reveal:
Headline CPI inflation had fallen sharply in the September quarter because of electricity rebates and declining fuel prices. Underlying inflation – which members agreed provides a better indicator of inflation momentum – had remained high (at 3.5%) and was declining more slowly…
Inflation was not expected to return sustainably to the target until 2026, as the level of aggregate demand and aggregate supply move into better balance.
And while you may hear a lot of noise about real interest rates coming down in other developed nations, the RBA said most of those countries have more restrictive monetary policies than Australia.
According to the RBA:
Members observed that policy interest rates in most other advanced economies were still assessed to be restrictive relative to those central banks' published estimates of neutral rates, and more restrictive than monetary policy in Australia.
Despite ongoing elevated interest rates, the ASX 200 has gained 18.7% over the past year.
