The S&P/ASX 200 Index (ASX: XJO) was enjoying a strong day on Tuesday.
At 2:30pm AEDT, the benchmark Aussie index was up 1.1% at 8,872.8 points.
As you're likely aware, that's right when the Reserve Bank of Australia announced its latest interest rate decision.
In its first meeting of 2026, the RBA decided to increase the official cash rate by 0.25% to the new 3.85%.
With market expectations of an interest rate hike having increased to 72% heading into today's announcement amid resurgent inflation, ASX 200 investors are taking the news better than might have been expected.
At time of writing, the benchmark index remains up 0.7% for the day, having tumbled 0.4% in the minutes following the RBA's announcement.
Here's what Australia's central bank just reported.
A man climbs a tall read ladder leading to higher interest rates.
ASX 200 slips as RBA boosts interest rates
The RBA board noted that while inflation has come down substantially since its peak in 2022, inflation "picked up materially" in the second half of 2025.
Explaining the decision to lift rates that's weighing on the ASX 200 today, the RBA said:
The board has been closely monitoring the economy and judges that some of the increase in inflation reflects greater capacity pressures. As a result, the Board considers that inflation is likely to remain above target for some time.
As for those capacity pressures, the board acknowledged that the private demand growth has "substantially" exceeded its expectations. Private demand growth is being driven by both household spending and investment.
And the central bank's inflation battle isn't being aided by housing prices, which have continued to pick up.
The RBA also highlighted the lag time between its previous rate cuts and the impact on inflation.
"Credit is readily available to both households and businesses and the effects of earlier interest rate reductions are yet to flow through fully to aggregate demand, prices and wages," the board said.
And, while good news for Aussie workers, ongoing tightness in the labour market could also continue to put upward pressure on prices and delay any rate relief for mortgage holders and ASX 200 investors.
According to the board:
The unemployment rate has been a little lower than expected and measures of labour underutilisation remain at low rates. Growth in the Wage Price Index has eased from its peak, but broader measures of wages growth continue to be strong and growth in unit labour costs remains high.
Connecting the dots, the RBA concluded, "The board judged that inflation is likely to remain above target for some time and it was appropriate to increase the cash rate target."
With today's intraday gains factored in, the ASX 200 is up 5.5% over 12 months.
