As of 1 December, market expectations were that there was just a 2% chance of rates going up to 4.60% tomorrow, with a 98% consensus of a pause.

Economists from all of the big four Australian banks are also predicting no change to the cash rate target at tomorrow's RBA meeting.

However, there was also a broad consensus the board will retain their tightening bias looking forward to decisions in 2024, with a hike in February still a real possibility.

CommBank Chief Economist Gareth Aird is ascribing a 90% chance to rates being kept on hold, and a 10% chance there will be another 25 basis point increase.

"The RBA Board is now data dependent and the economic data released since the November Board meeting does not support another rate increase in December," Mr Aird said.

"The expected decision to leave the cash rate on hold in December should be straightforward."

In the accompanying statement with the November rate hike, RBA boss Michele Bullock said the incoming data would determine whether rates need to go up again.

Since the November decision, the ABS has released labour force figures for October, which showed unemployment increased slightly to 3.7%, as well as the monthly CPI inflation indicator, which suggested annual inflation was 4.9% in the year to October, down from 5.6% in September.

There was a substantial 1.3% quarterly increase to the third-quarter wage price index (WPI), but Mr Aird says this was still broadly in line with the RBA forecast in the November Statement on Monetary Policy (SMP).

Retail trade also declined 0.2% in October compared to September, although as Ben Dorber, ABS head of retail statistics pointed out, this was to be expected ahead of the festive season.

"It looks like consumers hit the pause button on some discretionary spending in October, likely waiting to take advantage of discounts during Black Friday sales events in November," he said.

Hammer to fall in February instead?

While December's decision looks to be a foregone conclusion (although shocks do happen), attention will likely be on the accompanying statement for indicators about future rate hikes.

Mr Aird says Michele Bullock has arguably increased the "hawkish rhetoric" since the November decision, but that this could also be to justify the November hike rather than signaling the intent to be more heavy handed with monetary policy tightening.

He said Ms Bullock might be deliberately overstating the likelihood of further rate hikes.

"We also think that the Governor is trying to ‘jawbone’ to the household sector to elicit a greater behavioural response to the November rate increase," he said.

For NAB economist Tapas Strickland however, who called the November rate hike well in advance, a 25 bps increase in February continues to be the likeliest outcome.

"[We] still see [the RBA] hiking again in February given domestic price pressures which should again be evident in the Q4 CPI data on 31 January 2024," he said on Friday.

While monthly inflation for October was a slight downside surprise, economists are genuinely reluctant to take much notice of what Luci Ellis, Chief Economist at Westpac, calls the 'noisy' monthly figures.

"Neither the RBA nor Westpac take full signal from a single monthly reading," Ms Ellis said.

"Some of the biggest downside misses, such as for holiday travel, could reverse out.

"Moreover, most of the services components, which have been such a source of concern to the RBA, are not included in the first month of the quarter.

"We will not know how these are tracking until the November and December releases."

Ms Ellis and Westpac expect a February rate hike if there are further upside surprises to inflation in the quarter-four CPI reading - to be released 31 January 2024 - or if fresh evidence emerges that inflation will decline more slowly than forecast.

Image by Negative Space via Pexels

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