The Reserve Bank of Australia kept its key interest rate unchanged on Tuesday, but Governor Michele Bullock adopted a hawkish stance, warning that further monetary policy tightening is "quite likely" in the future.

During the press conference, Bullock emphasized that the rate hike cycle may not be over, causing a reversal in bond yields. She repeatedly stated that the board discussed either holding rates steady or raising them, with no consideration of a rate cut. When asked about the long-term probability of both rate hikes and cuts, she responded: "We have raised rates three times, and if necessary, we will do so again. Personally, I think it's quite likely we will need to hike again, but we need to take it step by step."

After traders raised their expectations for further RBA tightening, the policy-sensitive three-year government bond yield closed 3 basis points higher at 4.57%. The RBA board held the cash rate at 4.35% for the second consecutive policy meeting, a decision that was unanimously supported and widely anticipated by the market. The central bank's latest economic forecasts indicate that inflation is expected to reach the midpoint of the 2-3% target range by early 2028.