Expectations are high for a Reserve Bank rate hike at its first meeting of the year, but what it does next is much less certain.
As the central bank's board was ensconced in deliberation at its temporary digs around the corner from Martin Place, bond traders were pricing in a greater-than-three-quarter chance of a 25 basis point hike.
Fresh data last week showed the Reserve Bank's preferred measure of inflation, the quarterly trimmed mean, is running at 3.4 per cent - well above the central bank's 2.5 per cent target point.
Having previously opened the door to a hike with hawkish commentary in December, it was harder now not to walk through it, JP Morgan economists Ben Jarman, Tom Kennedy and Tom Ryan said.
While most economists agree a rate rise on Tuesday is inevitable, they don't all share the market's belief the Reserve Bank will hike again before the end of 2026.
"We don't see a case for further tightening past February at this stage, unless the RBA staff’s forecasts change in a substantial way," Mr Jarman, Mr Kennedy and Mr Ryan said.
Commonwealth Bank head of Australian economics Belinda Allen agreed.
"We think the RBA will be one and done for interest rate hikes in 2026," she told AAP.
"Inflation is too high, the economy is growing a little bit above its potential, but it won't take much to bring the economy and inflation back into balance.
"The risk, of course, is that more will need to be done.
"A lot of that will be driven by how the labour market performs and how upcoming inflation prints go."
Simultaneous to the rate decision, the Reserve Bank will release its updated staff economic forecasts.
The Statement on Monetary Policy will provide plenty of clues about how the bank thinks the next year will play out.
"It's important to watch those figures, because that will also give us a clue about what the RBA thinks they may well have to do in terms of interest rates," Ms Allen said.
In their latest set of economic forecasts in November, Reserve Bank staff forecast inflation to remain above 2.5 per cent until at least the end of 2027.
But that was based on market forecasts for interest rates, which at the time assumed the cash rate would remain at its current level.
While inflation has since exceeded expectations, the cash rate assumption Reserve Bank staff will be using to model their forecasts will now be substantially higher.
Along with a stronger Aussie dollar, which hit a three-year high above US71c last week and will take some heat out of the economy, that should enable them to forecast inflation returning to target, ANZ Bank's head of Australian economics Adam Boyton said.
"We expect (governor Michele) Bullock will emphasise that the board is not committed to any particular path for the cash rate and that an interest rate increase in February is not necessarily the start of a series of rate hikes," he said.
