The recent message from financial markets to mortgage customers has been pretty clear: don’t expect further cuts in your home loan interest rate.

That story is likely to be reinforced on Tuesday when the Reserve Bank, led by governor Michele Bullock, holds its final board meeting of the year. Investors are nearly certain the cash rate won’t change, and many RBA-watchers are betting rates will stay unchanged for a while yet – perhaps even all of next year.

Reserve Bank governor Michele Bullock is unlikely to start slashing rates again any time soon.Credit: Louie Douvis

Who knows if they are right – even the Reserve Bank can’t be sure of exactly where interest rates might move from one board meeting to the next.

But if you step back from trying guess what the RBA might do at this meeting or the next, you can be more confident about a longer term trend: barring a crisis, we are not about to return to the era of very low interest rates of late last decade, let alone the zero-rate world that arrived thanks to COVID-19.

For those who’ve forgotten, the second half of the 2010s and the early years of the 2020s was a time of very cheap debt. The cash rate spent years under 2 per cent, falling to less than 1 per cent by 2019. Then borrowing got even cheaper when the COVID-19 emergency of 2020 stoked fears of a great depression, taking rates to near zero.

There are a few reasons why we’re probably not returning to an era of such cheap money. But one that’s getting a lot of attention from economists right now is the worry that our economy is running at close to its “capacity”, meaning there’s less scope for rate........

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