The RBA governor rightly decided not to pile more pressure on in the lea up to Christmas

The RBA governor decided quite rightly not to be The Grinch this Christmas. But what’s in store on the interest rate front for next year?

RBA governor Michele Bullock.

There was no way that Michele Bullock was going to play the Grinch. And she didn’t.

So, 20 days out, with all those days left for spending, it was a ‘Merry Christmas’ from your friendly Reserve Bank governor.

Now, she mightn’t have particularly wanted to send the signal – you can now go ahead and load up the credit card.

But at least, now, your friendly neighbourhood banker won’t be hitting home loan borrowers with an increase in repayments, this side of the New Year.

The much bigger question is what happens after we tick into 2024.

Have we seen the last of the official rate hikes from the Reserve Bank, back on Cup Day?

And indeed, if so, how quickly will the RBA move to rate cuts?

Or are we headed for an extended period – maybe all the way through 2024 of unchanged rates.

Bullock gave no real clues in her very terse statement yesterday.

All we got was the ritualistic statement that the Board remained “resolute” in its determination to get inflation back to target.

The target is of course 2-3 per cent. Inflation over the year to the end of September was 5.4 per cent.

But the RBA under both Bullock and her predecessor Philip Lowe were prepared to take until mid-to-late 2025 to get it back below 3 per cent.

I suggest there is a very good chance we did see the last of the rate hikes back on Cup Day.

Indeed, I don’t think that hike was necessary; that it will come to be seen as ”the rate hike too far”.

That said, I can fully understand why Bullock led her board to hike. It was about drawing two liens in the sand.

First, she – and her board – would not be ‘instructed’ by Treasurer Jim Chalmers, who had publicly if indirectly stated that a rate hike wasn’t needed.

And secondly, to state up front, at the start of her seven years, that she was a governor who would ‘do’ her ‘day job’’ of keeping inflation low.

She was taking out insurance and sending out important signals.

Whether or not we get further rate rises in 2024 is now all down to you.

Two things would see the RBA going back – having to go back – to rate hikes.

The first and most potent is if wage rises of 4 per cent or higher became standard across the economy.

In the absence of productivity, wage rises of 4 per cent-plus would lock in inflation of at least 3 per cent and probably closer to 4 per cent-plus.

Bullock and her board would have to grind the economy with rate hikes.

Secondly, if massive immigration continues to drive spending and housing shortages.

Again, Bullock would have no option but to hike.

But for now, we’ve got a guaranteed two-month rate break until the February meeting.

Originally published as The RBA governor rightly decided not to pile more pressure on in the lea up to Christmas