Reserve Bank governor Michele Bullock could hardly have been more clear: expect the next move for interest rates to be up, not down.
In a notably more hawkish media conference than the noncommittal statement accompanying the central bank's decision to hold the cash rate at 3.6 per cent, Ms Bullock obliterated any sliver of hope for borrowers still holding out for more rate relief.
The RBA board was uncomfortable with the level of inflation, which spiked to 3.8 per cent in October - well above the two per cent to three per cent target band, she told reporters.
Strong economic growth, a tight jobs market and a lack of spare supply capacity in the economy mean the risks are more weighted to inflation coming in higher than expected, rather than lower.
What this all points to is no room for the RBA to lower rates again in 2026.
"Is it just an extended hold from here, or is it possibility of a rate rise? I couldn’t put a probability on those, but I think they’re the two things that the board will be looking closely at coming into the new year," the governor said.
Markets were mostly unmoved following the rates announcement on Tuesday afternoon.
But after Ms Bullock's hawkish comments, bond traders priced in as much as a 40 per cent chance of an interest rate rise in February.
The ASX200 fell while the Aussie dollar spiked 0.26 per cent to 66.49 US cents.
Just a few months ago, rates markets were pricing in one or two more rate cuts.
Although her base case remained that the cash rate would remain on hold, Commonwealth Bank head of Australian economics Belinda Allen said the RBA's next meeting in February was live.
The door was open to a hike in February if December quarter inflation data was high enough or indicated that price pressures were more persistent than temporary, Ms Allen said.
"Labour market data as well will be important. Attention will soon turn to Thursday’s labour force survey," she said.
"A move back to a tighter labour market will add to the case to hike."
If the RBA does hike by 25 basis points in February, that would add almost $90 more in monthly repayments for an average borrower with a mortgage of $600,000.
Borrowers unsatisfied by the forecasts of doom and gloom might want to consult Westpac's economics team for a second opinion.
Economists Sian Fenner and Justin Smirk were unmoved by the hawkish rhetoric, reiterating their belief that the economy had more capacity than the RBA feared and the recent spike in inflation was temporary and would soon abate.
"As such, our current baseline is for two more 25bp rate cuts but not until mid-2026," they said.
