ASX 200 rebounds after RBA hits pause on its rate hikes

The S&P/ASX 200 Index (ASX: XJO) has rebounded this afternoon after the Reserve Bank of Australia (RBA) announced its cash rate decision.

Shortly after the decision, the ASX 200 index is up 0.15% to 7,234.4 points.

RBA hits pause

According to the release, much to the delight of borrowers, the central bank has elected to pause its hikes and has kept the cash rate at 3.6%.

This shouldn’t come as surprise to the market. In fact, the ASX 30 Day Interbank Cash Rate Futures for April 2023 indicated that the market was pricing in a 100% probability that rates would not change at today’s meeting. That’s as sure as sure can be!

What did the RBA say?

The RBA explained that it was hitting pause because it wants to wait and see what impact recent hikes will have on the economy and inflation. Governor Philip Lowe commented:

At its meeting today, the Board decided to leave the cash rate target unchanged at 3.60 per cent and the interest rate on Exchange Settlement balances unchanged at 3.50 per cent. This decision follows a cumulative increase in interest rates of 3½ percentage points since May last year.

The Board recognises that monetary policy operates with a lag and that the full effect of this substantial increase in interest rates is yet to be felt. The Board took the decision to hold interest rates steady this month to provide additional time to assess the impact of the increase in interest rates to date and the economic outlook.

But that doesn’t mean that the rate hike cycle is over. The RBA concluded by stating that it believes further increases to the cash rate may be required in the future to tame inflation. It concludes:

The Board expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target. The decision to hold interest rates steady this month provides the Board with more time to assess the state of the economy and the outlook, in an environment of considerable uncertainty.

In assessing when and how much further interest rates need to increase, the Board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.

How are ASX 200 shares reacting?

It has largely been business as usual for ASX 200 shares since the RBA’s announcement. Here’s a summary of how some notable shares are faring:

• The Commonwealth Bank of Australia (ASX: CBA) share price has recovered from a 0.5% decline to be flat.
• The BHP Group Ltd (ASX: BHP) share price is still down almost 2% to $46.14.
• The Telstra Group Ltd (ASX: TLS) share price remains up 1% to $4.26.
• The Xero Limited (ASX: XRO) share price continues has climbed slightly since the decision to be up 1.5% to $92.04.

The post ASX 200 rebounds after RBA hits pause on its rate hikes appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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