The Australia 200 trades 30 points (-0.35%) lower at 8707 as of 2.40pm AEST.
ASX 200 drops as RBA cools rate cut hopes
After an early 22-point gain to a high of 8759.9, the Australia 200 (ASX 200) slipped into negative territory as it digested Reserve Bank of Australia (RBA) Governor Michele Bullock’s speech at the Annika Foundation lunch in Sydney titled ‘The RBA’s Dual Mandate – Inflation and Employment.’
Since taking over from Philip Lowe as RBA Governor in September 2023, Bullock has enjoyed a strong start to her tenure. However, the RBA’s decision to keep interest rates on hold earlier this month received widespread criticism after it caught the market and analysts off guard, who had been expecting a rate cut.
The situation was further exacerbated by the Australian unemployment rate surging to a 44-month high just a week later.
Inflation concerns and interest rate expectations
Nevertheless, the RBA Governor has elected to look through the recent criticism and, in her speech, downplayed the rise in employment, saying it wasn’t a surprise. She also noted that monthly inflation data suggests the inflation rate may not fall as fast as forecast in May.
The Australian interest rate market had started the day almost fully priced for a 25 basis point (bp) rate cut from the RBA on 12 of August, with a cumulative 66 bp of RBA rate cuts priced by year-end. While pricing for the August meeting remained unchanged (24 bp out of 25 bp), the RBA Governor’s cautious tone resulted in about 5 bp of RBA rate cuts being priced out of the market before year-end.