RBA rate cut fails to boost ASX 200

The ASX 200 trades 46 points (-0.55%) lower at 8490 at 3.25pm AEDT.

ASX 200 falls despite RBA rate reduction

The ASX 200 has failed to respond to the Reserve Bank of Australia’s (RBA) first interest rate cut since November 2020.

The RBA reduced its Official Cash rate by 25 basis points (bp) to 4.10%. Today’s decision follows nine consecutive meetings where the Cash rate was held at 4.35%.

Rate cut aligns with Fed and inflation trends

Today’s rate cut was widely expected after the RBA’s dovish pivot at the December Board meeting and a cooler-than-expected fourth quarter (Q4) inflation reading. In Q4, the RBA’s preferred measure of inflation, the trimmed mean, fell to 3.2% from 3.6%. Over the past six months, the annualised core inflation rate fell to 2.7%, within the Board’s 2 to 3% inflation target range.

The RBA’s rate cut comes five months after the United States (US) Federal Reserve (Fed) reduced its Fed funds rate by 50 bp in September 2024, the first of three rate cuts it delivered last year, totalling 100 bp. This continues the trend that the RBA typically cuts rates about six months after the Fed’s first rate cut. It also continues the trend that the RBA’s first rate cut typically comes 12 to 14 months after its last rate rise in a hiking cycle.

Cautious forward guidance from the RBA

The RBA’s forward guidance sounded cautious, as was widely expected:

'The forecasts published today suggest that, if monetary policy is eased too much too soon, disinflation could stall, and inflation would settle above the midpoint of the target range. In removing a little of the policy restrictiveness in its decision today, the Board acknowledges that progress has been made but is cautious about the outlook.'

The RBA’s forecasts for inflation, unemployment, and gross domestic product (GDP) for the first half (H1) of 2025 were all revised lower, as expected.

• The RBA revised trimmed mean inflation lower to 2.7% from 3%
• The RBA forecasts GDP lower to 2.0% from 2.3% prior
• The RBA revised the unemployment rate lower to 4.2% from 4.4%.

GDP, unemployment and inflation forecasts chart

Key data ahead of RBA's next Board meeting

Before the RBA's next Board meeting on 1 April, which will be held under the new monetary and governance board structure, several key data points will be scrutinised to assess the potential for a follow-up rate cut in April or May.

• January labour force report: Thursday, 20 February
• Q4 GDP: Wednesday, 5 March
• National Australia Bank (NAB) business confidence: Wednesday, 12 March
• February labour force report: Thursday, 20 March
• Monthly consumer price index (CPI) indicator: Wednesday, 26 March
• Westpac consumer confidence: Wednesday, 26 March

Interest rate market outlook

Today's rate cut is projected to reduce monthly mortgage payments by $77 on a $500,000 loan and by $154 on a $1 million loan.

The Australian interest rate market remains almost fully priced for follow-up 25 bp rate cuts in May and November, which would see the cash rate end the year at 3.60%.

ASX 200 stocks

Financial sector

The financial sector is on track for a fourth consecutive day of declines after reaching a new record high last Thursday.

• Westpac dropped 2.22% to $32.65 following a weak trading update
• NAB fell 1.8% to $39.78
• Commonwealth Bank of Australia (CBA) declined 1% to $163.32
• Australia and New Zealand Banking Group (ANZ) decreased 0.67% to $30.95

Materials sector

• BHP Group advanced 0.39% to $40.96 after reporting half-year revenues of US$25.2 billion (down 8%) and underlying attributable profit of US$5.1 billion (down 23%). The interim dividend was reduced by 30.5% to US$0.50 per share
• Mineral Resources declined 5.14%
• Rio Tinto fell 0.31%

Information technology sector

In contrast, the ASX 200 technology sector is among the few sectors trading higher this afternoon.

• Zip Co gained 3.06% to $2.52
• Megaport rose 2.45% to $9.41
• EML Payments added 1.23% to $0.82
• Life360 increased 0.44% to $24.83

ASX 200 technical analysis

Technically, the ASX 200 continues to trade within the bullish trend channel it has followed for the past 12 months. After rebounding from the lower bound of the trend channel in late December, the ASX 200 has since made fresh record highs and is now eyeing the top of the trend channel, currently at 8690.

Providing the ASX 200 holds above support at 8380 - 8360 (closing basis), the uptrend remains in place, and the ASX 200 can continue higher towards 8690.

ASX 200 daily chart

• _{Source: TradingView. The figures stated are as of 18 February 2025. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}