What can ASX 200 investors expect from the RBA next week?

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S&P/ASX 200 index (ASX:XJO) Investors will be alert next Tuesday at 2:30pm AEST.

Then the Reserve Bank of Australia (RBA) makes its next interest rate announcement. And it will be the last we hear that announcement from outgoing Chairman Philip Lowe.

On August 1, the ASX 200 surged 0.5% in the minutes after the RBA announced it would leave interest rates unchanged for the month.

With inflation trending downwards, the central bank left Australia’s official interest rate unchanged at 4.1%.

That was the third hike pause since the RBA began aggressively fighting inflation, raising interest rates 12 times since May 2022. At that time, the official key interest rate was a very attractive 0.1%!

This week’s Consumer Price Index (CPI) data from the Australian Bureau of Statistics (ABS) supports another pause on Tuesday. And the ASX 200 hit fresh two-week highs after the release of this report.

The annual CPI increase in July was 4.9% compared to 5.4% in June. Annual inflation peaked at a staggering 8.4% in December.

The decline in underlying inflation, which excludes volatile price changes on things like fuel, fruits and vegetables, and vacation travel, was more modest. Underlying annual inflation fell to 5.8% in July from 6.1% in June.

Both metrics, while trending down, are still well above the RBA’s inflation target of 2% to 3%.

And last month, Lowe warned: “Further monetary tightening may be needed to ensure inflation returns to target in a reasonable timeframe.”

So what can ASX 200 investors expect from the RBA next week?

What’s in store for the ASX 200 and interest rates?

A growing number of analysts are predicting that Australia may well have peaked in interest rates this cycle.

Among them the head of market analysis at Vantage Australia, Jeffrey Triganza.

According to Triganza:

On a month-to-month basis, not much has changed since the RBA paused interest rates in August. At the same time, underlying inflation started falling, showing that past rate hikes were having an effect.

To quote Newton’s First Law, the RBA is likely to take the path of least resistance here and initiate another pause in September.

He also pointed to the rather optimistic mood on the futures market.

“We’re also seeing this sentiment in the futures markets, which have priced in little to no chance of a rate hike until mid-2024,” Triganza said.

When ASX 200 investors could expect further relief in the form of rate cuts, Triganza is not advising to hold their breath.

“It is unlikely that we will see rate cuts until mid-2024 when inflation has come down much further,” he said.

The top economists of all four major ASX 200 banks are also forecasting a pause in the RBA next week.