The S&P/ASX 200 Index (ASX: XJO) was enjoying a solid run today before the Reserve Bank of Australia (RBA) announced its latest interest rate announcement.

At 2:30pm AEST, the benchmark Aussie index was up 0.4% when the RBA's latest interest rate decision hit the wires.

In the minutes that followed, the ASX 200 edged higher, to be up 0.5% at the time of writing.

Here's what's happening.

ASX 200 edges higher on RBA interest rate announcement

Hit with runaway inflation following the rather extreme fiscal and monetary easing in the pandemic years, with rates eventually falling to 0.10%, the RBA initiated a series of interest rate hikes in 2022.

This saw Australia's official cash rate reach 4.35% in November 2023. In February this year, ASX 200 investors were treated to the first interest rate cut since November 2020, when the RBA dropped the cash rate by 0.25% to 4.10%.

Today, the ASX 200 is enjoying another modest boost after the RBA announced, as was widely expected, that it was lowering the cash rate target by another 0.25% to 3.85%.

The RBA board noted:

Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance. Data on inflation for the March quarter provided further evidence that inflation continues to ease

Annual trimmed mean inflation (which takes out certain volatile items) has dropped to 2.9%, the first time it has fallen below 3.0% since 2021. And headline inflation of 2.4% is now right around the midpoint of the RBA's 2% to 3% target range.

The RBA forecasts an uptick in headline inflation in the year ahead, back towards 3%, "as temporary factors unwind". But the central bank now expects underlying inflation to be around the midpoint of its target range throughout much of its forecast period.

Now what?

Looking ahead, the RBA noted that global economic uncertainty has increased over the past three months, with volatility in financial markets like the ASX 200 rising "sharply for a time".

And investors have the Trump tariffs to blame for much of that uncertainty.

According to the RBA:

While recent announcements on tariffs have resulted in a rebound in financial market prices, there is still considerable uncertainty about the final scope of the tariffs and policy responses in other countries. Geopolitical uncertainties also remain pronounced.

Here in Australia, the board said that "private domestic demand appears to have been recovering", while labour market conditions remain tight. And that tight labour market could stoke ongoing inflationary pressures.

"Wages growth has softened over the past year or so but productivity growth has not picked up and growth in unit labour costs remains high," the RBA stated.

Still, adding up all the dots, the RBA concluded, "With inflation expected to remain around target, the board therefore judged that an easing in monetary policy at this meeting was appropriate."

With today's intraday gain factored in, the ASX 200 is up 6.1% over 12 months.