The S&P/ASX 200 Index (ASX: XJO) bounced higher following this afternoon's interest rate announcement from the Reserve Bank of Australia (RBA). The benchmark index was up 0.4% in intraday trading.
The ASX 200 had recovered from earlier intraday losses and was up 0.2% at 2:30pm AEDT. That's when the RBA reported it was keeping Australia's official interest rate steady at 4.35% and the interest rate paid on Exchange Settlement balances unchanged at 4.25%.
The pause was widely priced into the markets as the series of 13 rate hikes instituted by the central bank since May 2022 is bringing inflation back down to earth.
Though ASX 200 investors hoping for a return to the 0.10% cash rate of early 2022 will likely be left wanting for a long time.
And with warnings of "sticky" inflation, it remains unclear when we can expect the first rate cut back down to 4.10%.
Here's what the RBA reported.
RBA rate announcement boosts ASX 200 investor sentiment
Commenting on the board's decision to hold interest rates steady, boosting ASX 200 investor sentiment, the RBA board, led by governor Michele Bullock, said that inflation in Australia continues to moderate.
The headline monthly consumer price index (CPI) indicator was steady at 3.4% over the 12 months to January. While goods inflation is moderating, the bank noted that services inflation remains elevated and only coming down gradually.
And the RBA again noted that productivity levels need to pick up to justify the inflation we're seeing with wages:
[The] level of wages growth remains consistent with the inflation target only on the assumption that productivity growth increases to around its long-run average. Inflation is still weighing on people's real incomes and household consumption growth is weak, as is dwelling investment.
The ASX 200 might have seen an even stronger rally this afternoon if not for the RBA stressing that, "The outlook remains highly uncertain."
Internationally, those uncertainties include "the outlook for the Chinese economy and the implications of the conflicts in Ukraine and the Middle East".
And on the home front, the RBA said:
There are uncertainties regarding the lags in the effect of monetary policy and how firms' pricing decisions and wages will respond to the slower growth in the economy at a time of excess demand, and while the labour market remains tight. The outlook for household consumption also remains uncertain.
Aussie household consumption growth was said to remain "particularly weak amid high inflation and the rise in interest rates".
But the board noted that, "After recent declines, real incomes have stabilised and are expected to grow from here, which is expected to support growth in consumption later in the year."
As for wages, the RBA said:
Growth in unit labour costs remains very high. It has begun to moderate slightly as measured productivity growth has picked up in the past two quarters but whether this trend will be sustained is uncertain.
What now for Aussie interest rates?
As for when ASX 200 investors can expect interest rates to come down, the RBA's central forecast is for inflation to return to its target range of 2% to 3% in 2025 and to the midpoint in 2026.
And the RBA clearly does not want to be pinned down on the timing of any upcoming rate cuts. In fact, the board's language leaves the door open to a potential rate hike, should inflation prove resilient.
According to the RBA:
The board expects that it will be some time yet before inflation is sustainably in the target range. The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the board is not ruling anything in or out.
For now, ASX 200 investors will have to live with that uncertainty and keep seeking out quality companies trading at fair prices. Those interest rate cuts will get here eventually.
