Investing.com-- Australian shares jumped to a record high on Friday, propelled by investor optimism over potential interest rate cuts next month following softer-than-expected inflation data earlier this week.
Australia's S&P/ASX 200 benchmark index rose 0.4% to 8,524.60 points as of 02:32 GMT, after reaching a record high of 8,566.90 points earlier in the session.
The index was set for its best weekly gain since late December.
Earlier this week, data showed that trimmed mean inflation, the central bank’s preferred measure, fell to 3.2% year-on-year in the fourth quarter of 2024, below the RBA’s forecast of 3.4%. This steeper-than-anticipated decline led markets to expect that the Reserve Bank of Australia (RBA) might consider cutting interest rates sooner to alleviate mortgage pressures.
Analysts at ANZ (ASX:ANZ) and Westpac (ASX:WBC), two of the "Big Four" banks in Australia, expect RBA to cut rates on Feb 18 on the back of cooling inflation, they said in a recent note.
Both banks cautioned that the RBA would remain data-dependent beyond the initial cut. Westpac expects further reductions in May, August, and November, bringing the terminal cash rate to 3.35% by year-end.
Gains on Friday were broad-based, with most major sectors rising. Heavyweight ASX 300 Metals & Mining index rose more than 1% with mining giants such as Rio Tinto Ltd (ASX:RIO), and BHP Group Ltd (ASX:BHP) gaining.
All Ordinaries Gold index jumped 2.6% on slightly higher gold prices, while ASX 200 Energy index gained with higher oil prices.
Financial stocks were largely muted, pressured by expectations of lower interest rates.
Despite the positive market response, analysts caution that the RBA may adopt a measured approach, monitoring economic indicators closely before making policy adjustments. The central bank has previously indicated that it expects inflation to remain within its target range of 2% to 3% over 2025 before considering rate cuts.