Investors got a jolt of optimism this afternoon following the RBA’s latest announcement
The post ASX 200 bounces back as RBA holds interest rates appeared first on The Motley Fool Australia. –
The Reserve Bank of Australia (RBA) has opted to keep interest rates at their historic low for a 10th consecutive month. The S&P/ASX 200 Index (ASX: XJO) edged into the green after the RBA made the announcement at its September meeting.
Following the news, the Australian benchmark index finished 0.02% higher to 7,530.3 points. The index had been as low as 7,487.8 points earlier in the day.
Let’s have a closer look at what was shared at the latest RBA meeting.
Economic bounce back
Refraining from increasing interest rates might appear negative on the surface. However, the central bank shared an optimistic perspective for the Australian economy. This coincided with the ASX 200 retracing upwards from its session lows.
In the meeting, Governor Philip Lowe outlined that the disruptions lockdowns have had on the economy are merely a “setback”.
Mr Lowe added that the Delta outbreak is expected to delay, but not derail, Australia’s economic recovery. Furthermore, the RBA is forecasting the economy to respond strongly as vaccination rates increase, leading to an easing of restrictions.
As a result, the central bank has decided to forge forth with its plan to taper quantitative easing (QE). This means the Reserve Bank will reduce its government bond-buying scheme to $4 billion per week, down from its previous $5 billion.
Demonstrating the balancing act being conducted, the RBA has kept interest rates at their all-time low of 0.10%. This is in light of the financial impact that will likely lead to a material reduction in gross domestic product for the September quarter — coinciding with an anticipated increase in the unemployment rate in the coming months.
Additionally, the central bank noted it would not consider reducing its level of weekly QE again until at least mid-February 2022. The combination of historically low interest rates and continued monetary intervention by the Reserve Bank appears to have left investors of the ASX 200 more optimistic this afternoon.
Looking back at the ASX 200
The S&P/ASX 200 Index has benefitted from a quick injection of monetary stimulus and intervention since the COVID crash. Consequently, the Australian index has broken multiple records over the course of the past 18 months. For instance, the ASX 200 has touched never-before-seen highs around the 7,600 point level.
Similarly, the index posted one of its largest gains in a financial year in history in FY21. Over the course of FY21, the ASX 200 surged a monumental 24%. Investors might be hoping for further gains given the continued economic support from the RBA.
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Motley Fool contributor Mitchell Lawler 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 Bruce Jackson.