Reserve Bank of Australia Governor Michele Bullock has raised the  possibility a rise in official interest rates in the new year.

Speaking after the RBA board elected to leave rates on hold Tuesday, Bullock told reporters that a rate cut was never in consideration at its final meeting of the year.

“We didn’t consider the case for a rate cut at all,” Bullock said.

“We didn’t explicitly consider the case for a rate rise at this meeting, but we did consider and discuss quite a lot the circumstances and what might need to happen if it we would decide that interest rates had to rise again at some point next year,” she added.

In a widely anticipated, unanimous decision the RBA kept the cash rate steady at 3.6 per cent.

The return of inflation in the second half of 2025 scuppered hopes of more interest rate cuts, following 75 basis points of easing since February.

“If inflation continues to be persistent and looks like it is not coming back down towards the target, then I think that does raise questions about how tight financial conditions are and the board might have to consider whether or not it’s appropriate to keep interest rates where they are or in fact at some point raise them,” Bullock said.

In its accompanying statement to the rates decision, the RBA board said recent data suggested the risks to inflation had tilted to the upside.

“But it will take a little longer to assess the persistence of inflationary pressures,” it said.

“Private demand is recovering. Labour market conditions still appear a little tight but further modest easing is expected. 

“The board therefore judged that it was appropriate to remain cautious, updating its view of the outlook as the data evolve.”

The rates market and most economists now believe the RBA’s easing cycle is over.

If inflationary pressures continue to build, some analysts say the bank could be forced to hike interest rates as soon as February.

“Should inflation numbers published in January show a continued rise, the possibility of an interest rate hike at the February meeting remains on the table to ensure inflation returns to target in a reasonable time frame,” economist at Monash University Isaac Gross said.

Domain chief economist Nicola Powell said the turnaround in rate expectations could help take heat out of the rapid price growth in the housing market during the past year.

“However, it doesn’t solve the deeper affordability issues,” she said.

“Mortgage holders are still managing repayments that are significantly higher than they were before the tightening cycle began in 2022.”

The outlook for households and businesses has soured markedly from a few months ago, when bonds traders were pricing in one or two more cuts.

Business confidence plummeted to its lowest level since April, according to NAB’s monthly business survey.

The index fell five points in November but remains just above zero, meaning more businesses remain optimistic than pessimistic.

Business conditions also retreated three index points, as firms noted weaker profitability and trading.

“While the November result shows a break in the recent positive momentum in the survey, business conditions remain well above their early 2025 levels,” NAB chief economist Sally Auld said on Tuesday.

Despite the fall in activity, capacity utilisation climbed to its highest level in 18 months.

Recent inflation data showed the consumer price index rose to 3.8 per cent in the 12 months to October, while underlying inflation climbed to 3.3 per cent – both above the RBA’s two to three per cent target range.

Treasurer Jim Chalmers said while millions of Australians would have preferred a rate cut, the decision was widely anticipated by economists and markets.

“Inflation has moderated substantially since we came to office and that has given the Reserve Bank the confidence to cut interest rates three times this year,” he said in a statement.

“This is a reflection of the significant progress Australians have made together over the last few years.”

Shadow treasurer Ted O’Brien said was is deeply concerning to think that the next move in rates will be up, not down.

“This will only make it harder for everyday Australian households,” he said.

-with AAP