S&P/ASX 200 Index (ASX: XJO) investors have been waiting for more than a year now for the Reserve Bank of Australia (RBA) to cut interest rates.
Australia's official cash rate currently stands at a 13-year high of 4.35%.
It reached that level in November 2023, following a rapid series of 13 interest rate hikes. Those kicked off in May 2022, when the RBA began tightening to combat soaring inflation.
As hard as it is to believe now, prior to that first boost, Australia's official cash rate stood at a rock bottom 0.10%.
Why?
Partly because, ahem, the central bank was trying to stoke stubbornly absent inflation which had been running below its 2% to 3% target range.
So, when can ASX 200 investors expect interest rates to come down?
Well, most likely not on 10 December when the central bank makes its next rate decision.
Speaking in Sydney yesterday, RBA governor Michele Bullock said:
Given the tightness in Australia's labour market, along with our assessment that the level of demand still exceeds supply in the broader economy, we expect it will take a little longer for inflation to settle at target.
If not December, then when?
ANZ amends RBA interest rate forecast
ANZ Group Holdings Ltd (ASX: ANZ) has pushed back its expectations of a 0.25% RBA interest rate cut from February to May.
The forecast delay in easing comes as tax cuts appear to be boosting consumption and labour markets remain on the tight side.
Adam Boyton, ANZ head of Australian economics, said Bullock's hawkish speech yesterday reinforced the bank's expectations that ASX 200 investors won't get any rate relief until May.
According to Boyton (quoted by The Australian)
At turning points, we should focus more on what the RBA should do rather than its rhetoric, but we had expected a more neutral tone by now.
With the board still focused on the level of demand exceeding supply, our forecast for six-month annualised trimmed mean inflation to fall just within the RBA's target band by the February meeting is no longer looking like enough.
Could the ASX 200 still get a February rate cut boost?
Not everyone is convinced we'll need to wait until May to see the first RBA interest rate reduction.
Goldman Sachs had a different take from Bullock's speech, and its economists still expect Australia's central bank to begin easing in February.
"In our view, underlying inflation in Australia is not materially higher than key G10 peers – relative to each central bank's inflation target," the broker said (quoted by The Australian Financial Review).
Goldman Sachs added:
Given this, and comments by governor Bullock that the RBA would be forward-looking and not necessarily require two additional 'good' quarterly CPI reports, we continue to view an early 2025 rate cut as the most likely scenario.
We expect the RBA to commence a gradual easing cycle in February 2025 but acknowledge ongoing institutional change at the RBA complicates our understanding of the RBA's reaction function and that the risks are skewed to a slightly later start date.
Mind you, the ASX 200 has been doing quite well despite the elevated interest rate environment. Since this time last year, the benchmark index has gained 19.6%.
