S&P/ASX 200 Index (ASX: XJO) investors will be tuning in tomorrow afternoon to find out the latest interest rate decision from the Reserve Bank of Australia (RBA).
With inflation running hot, the RBA lifted the official cash rate from the all-time low of 0.10% to the still historically low 0.35% on 4 May last year.
That was the first time the RBA had increased the interest rate since 10 November 2010.
And, as you're most likely aware, the central bank hasn't let off since May.
December marked the eighth consecutive month of rate increases, bringing the current cash rate to 3.35%, the highest rates since September 2012.
The RBA is faced with stubbornly high core inflation figures, though household spending and the labour market are showing some signs of slowing.
With that in mind, what can ASX 200 investors expect from the bank tomorrow?
What's in store for the ASX 200 when the RBA reports tomorrow?
So far in 2023, the ASX 200 has thrown off its 2022 jitters about rising interest rates, with the benchmark index up a remarkable 7.2% year-to-date.
But any outsized increase could see the benchmark index drop while a pause in the tightening cycle would likely see shares rally.
With that said, here's what the experts are forecasting.
According to Frank Uhlenbruch, investment strategist at the Janus Henderson Australian Fixed Interest team:
Our base case cash rate view remains unchanged and has the RBA lifting the cash rate by 0.25% in February and then pausing to monitor the path of demand. Provided demand responds to earlier tightening, we look for a late tightening cycle 0.25% "inflation insurance" move in May. This would take the cash rate to a moderately restrictive 3.60%, making the current tightening cycle the largest and fastest in the monetary policy inflation targeting era.
Janus Henderson does not believe the RBA will cut rates until 2024.
Josh Gilbert, market analyst at eToro also sees another increase coming tomorrow but believes we're close to or at the last one.
"Another hike looks set to be delivered by [RBA] governor Lowe, but the peak of this cycle is in touching distance," he said.
Andrew Ticehurst, macro strategist at Nomura Holdings, believes ASX 200 investors should be prepared for an outsized rate hike rather than any dovish pivot tomorrow.
"The RBA finds itself in a tight spot, with widespread data now showing the economy is cooling, but core inflation is uncomfortably hot," he said (quoted by Bloomberg). "The risk would be for a larger move, rather than no move, in our view."
What's the consensus view?
According to a poll of 24 economists conducted by The Australian Financial Review, ASX 200 investors will most likely see a 0.25% rate increase tomorrow, with 22 expecting a quarter percentage point hike.
As for the full year, five of the 24 economists believe the RBA will cut rates once or twice in the second half of 2023. The rest believe we'll need to wait until at least 2024 for some relief.
The median expectation from the polled economists sees the official cash rate peaking at 3.6%.
HSBC chief economist Paul Bloxham believes we'll reach that 3.6% peak on 7 March, noting that it's "too soon to be convinced that inflation will get back to target anytime soon".
"We forecast the cash rate on hold at 3.6% to end 2024 and do not forecast beyond that," he said.
Stephen Smith, partner at Deloitte Access Economics, also believes the RBA will boost rates by another 0.25% on Tuesday. Though he thinks the central bank would do better by holding at current levels. A belief likely shared by most ASX 200 investors.
"It seems likely the RBA will increase by 25 basis points to 3.35% on Tuesday," he said. "However, we think that we are now in the territory where further increases in the cash rate beyond 3.1% would be a mistake."
