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Money markets flipped to pricing a 20% chance the Reserve Bank will raise rates at its next meeting in August after Governor Michele Bullock said persistent inflation meant the board considered a hike, before deciding to keep borrowing costs unchanged on Tuesday. Prior to the decision, traders were barely pricing any chance of a rate rise.

Three-year bond yields jumped after the release and remained there, the first time that’s happened on an RBA meeting day since last June, when the central bank sprung a surprise rate increase. Australia’s central bank is the only major monetary authority outside Japan seen as potentially delivering a hike at its next gathering.

“The risk of an RBA rate increase is still being under-priced,” said Sean Keane, chief strategist for Asia Pacific at JB Drax Honore. “What was clear throughout the press conference was that the RBA are more concerned about inflation than they were at the last meeting, and the balance of risks have swung further towards the need for a further interest rate tightening.”

Yields on policy-sensitive three year government bonds continued to climb on Wednesday. The rate ended Tuesday 3.7 basis points higher than its level before the policy decision, having peaked at a gain of 5 basis points during Bullock’s press conference. That’s still a less impressive jump than the one that came on June 6, 2023, when the yield closed 9 basis points higher.

Bullock has repeatedly said the rate-setting board isn’t “ruling anything in or out,” though some economists suggested the RBA is in fact ruling in the potential for a rate hike, and ruling out a cut. Indeed, the governor said the board discussed the case to hike this month but that a rate reduction wasn’t on the table.

Economists and money markets still see the likely next move as down, though not until 2025. That would probably result in the RBA being among the last of the major central banks to embark on an easing cycle.

“The RBA board appears less certain that inflation is moderating,” said Besa Deda at Westpac Banking Corp. “If the concerns around persistent price pressures continue, we think the RBA is more likely to keep the cash rate on hold for longer than to hike again.”