S&P/ASX 200 Index (ASX: XJO) investors have been waiting very patiently for the Reserve Bank of Australia (RBA) to cut the interest rate.
How patiently?
Well, the last time Australians enjoyed an interest rate reduction was way back in November 2020. Amid the impacts of the global pandemic, that's when the RBA cut the official cash rate to a historic low of 0.10% from the previous 0.35%.
And there it stayed until May 2022, when the RBA and other global central banks woke up to the reality that years of quantitative easing and ultra-low rates had finally succeeded in stoking 'stubbornly missing' inflation.
By the time the smoke cleared in November 2023, the RBA had raised the cash rate 13 times to the current 4.35%.
As you're likely aware, the RBA board will announce its next decision on Tuesday, 6 August.
Wednesday's inflation data eased concerns over a potential interest rate hike next week and sent the ASX 200 soaring 1.8%. But annual trimmed mean inflation still came in at 3.9%, above the RBA's target range of 2% to 3%.
So, can ASX investors finally expect some relief on Tuesday?
What do the experts say on a Tuesday RBA interest rate cut?
Well, there's good news and bad news for ASX 200 investors on the interest rate front.
The good news is most market experts believe it's highly unlikely the RBA will tighten further on Tuesday.
The bad news is these same experts don't expect the central bank to begin easing for a while yet either.
"There will be a collective sigh of relief from the RBA at Martin Place, with this week's CPI readings likely giving the board the freedom to leave rates on hold," Josh Gilbert, market analyst at eToro said.
Gilbert added:
We can now shift the focus away from another hike and instead look towards that first cut, which will improve investor sentiment and be positive for markets. Early market pricing suggests that the first cut could appear as soon as February next year.
Citi chief economist, Josh Williamson said the latest CPI data "means the RBA can keep the cash rate target unchanged at 4.35%, now likely to be the peak of the cycle, for the entirety of this year" (quoted by The Australian).
But he's also not expecting any interest rate reductions in 2024.
"Households now have tax cuts, and with further fiscal expansion likely this year ahead of elections, it is too early for the RBA to signal that the next move is down," Williamson said.
Betashares chief economist David Bassanese also expects the RBA to hold tight on Tuesday. But he's not ruling out a potential rate hike down the road.
"Those with a mortgage can breathe a sigh of relief, at least for now," Bassanese said. "Though Australia retains a sticky inflation problem and interest rate increases at some stage this year can still not yet be confidently ruled out."
We'll give the last word on Tuesday's interest rate outlook to Morgan Stanley economist Chris Read.
"Given the clear preference for the RBA to remain on hold, we think this print gives them enough scope to do that," Read said.
Reed added:
However, there are still likely to be modest forecasting increases to GDP growth and underlying inflation as the somewhat stronger inflation, revised higher consumer spending and higher levels of government stimulus are all incorporated.
This is likely to keep messaging somewhat hawkish, although we see the likelihood of them hiking rates as very low past this meeting.
Despite high rates and elevated inflation, the ASX 200 has managed to gain 7.8% over the past year.
