ASX 200 turbulent following the RBA interest rate decision

At 2:30pm AEDT, the S&P/ASX 200 Index (ASX: XJO) was down 0.3%.

That, as you're likely aware, is when the Reserve Bank of Australia (RBA) revealed its final interest rate decision of the year.

In the two minutes following the RBA's announcement, the ASX 200 leapt 0.3%. At the time of writing, 30 minutes post the announcement, the benchmark Aussie index has given back those gains to again be down 0.3% for the day.

Here's what investors are mulling over.

ASX 200 jumps then falls as RBA keeps interest rates on hold

Virtually no analysts were forecasting a December interest rate cut from the RBA, with a few economists even cautioning of a potential rate hike.

Fortunately for mortgage holders and ASX 200 investors alike, that hike did not materialise, with the RBA today announcing it had decided to leave the cash rate unchanged at 3.60%.

"While inflation has fallen substantially since its peak in 2022, it has picked up more recently," the RBA said.

While the central bank stressed that significant uncertainty remains in its battle against recently resurgent inflation, the tone was less hawkish than many had expected.

According to the RBA:

The board's judgement is that some of the recent increase in underlying inflation was due to temporary factors and there is uncertainty about how much signal to take from the monthly CPI data given it is a new data series. Nevertheless, the data do suggest some signs of a more broadly based pick-up in inflation, part of which may be persistent and will bear close monitoring.

As for ongoing inflationary pressures from the labour market, the RBA said, "Various indicators suggest that labour market conditions remain a little tight."

Optimistic ASX 200 investors may have picked up on the 'little tight' here, with the RBA adding, "The unemployment rate has risen gradually over the past year and employment growth has slowed."

But as mentioned, the board stressed that the outlook for inflation and interest rates heading into 2026 remains uncertain, in part due to rising wages.

"Wages growth, as measured by the Wage Price Index, has eased from its peak but broader measures of wages continue to show strong growth and growth in unit labour costs remains high."

Summarising its unanimous decision to keep Australia's official interest rate on hold at 3.60%, the board concluded:

The recent data suggest the risks to inflation have tilted to the upside, but it will take a little longer to assess the persistence of inflationary pressures. Private demand is recovering. Labour market conditions still appear a little tight but further modest easing is expected.

The board therefore judged that it was appropriate to remain cautious, updating its view of the outlook as the data evolve.

With today's intraday dip factored in, the ASX 200 is up 4.9% in 2025.

The post ASX 200 turbulent following the RBA interest rate decision appeared first on The Motley Fool Australia.

Motley Fool contributor Bernd Struben 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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