Tag: ASX 200 Index

Key Points

• The RBA raised its cash rate target by 25 basis points to 3.85%.
• The consumer price index jumped to 3.8% for the 12 months to December 2025.
• The unemployment rate fell to a seasonally-adjusted 4.1%.
• The ASX 200 found support at 8800.

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The RBA increased its cash rate target by 25 basis points to 3.85%, citing stubborn inflationary pressures and a labor market that is “a little tight.”

The trimmed mean, the RBA’s preferred measure of underlying inflation, increased slightly to 3.3% for the 12 months to December 2025, up from 3.2% in November. However, a jump in the consumer price index to 3.8% from 3.4% in November spooked the central bank into a speedy reversal of its recent accommodative monetary policy.

The 0.25% rate increase comes less than 12 months after the RBA commenced rate cuts on 19 February last year. The cumulative 75-basis-point rate-cut cycle is the shallowest in the past 35 years, an acknowledgment that it cut too soon.

The seasonally adjusted unemployment rate fell to 4.1% in December from 4.3% in November, indicating a tighter labor market.

The S&P Global Composite PMI for Australia jumped to 55.7 in January 2025, the highest level in more than 3 years.

Also, the ANZ-Indeed job ads average increased to 4.4% in January 2026, but remains in a long-term downtrend.

However, aggregate monthly hours worked grew by 1% over the 12 months to December 2025, suggesting low real GDP growth in the year ahead.

Over the same 12 months, credit and broad money grew at rates of 7.6% and 7.2%, respectively. The wide margin of more than 6.0% between credit/money growth and actual hours worked suggests strong underlying inflationary pressures.

The ASX 200 shrugged off the rate increase, respect of support at 8800 signaling another test of 9000.

The large ASX 200 Financials index indicates increased buyer interest, with a higher Trend Index trough.

The ASX 300 Metals & Mining index continues in a strong uptrend, and recovery above 8000 would indicate a fresh advance, with a short-term target of 8750.

Conclusion

The RBA faces a dilemma.

On the one hand, economic growth is slowing. Aggregate monthly hours worked grew just 1.0% in 2025, while real GDP growth slowed to 0.4% in the third quarter.

On the other hand, inflation is rising due to high government spending, loose monetary policy, and high immigration, crush-loading the housing rental market.

Hiking rates will further slow the economy, but the central bank is already late in tightening monetary policy and will need to hike aggressively to bring inflation back under control.

For now, the stock market shrugged off the rate increase. However, the RBA will need to inflict some pain to achieve its goal.

Acknowledgments

• ABS: Monthly CPI
• ABS: Labor Report
• Trading Economics: Australian GDP Annual Growth Rate
• Trading Economics: S&P Global Australian Composite PMI