(Bloomberg) -- Australia’s central bank has surprised markets at three of its 10 policy meetings of 2022, suggesting traders are simply being prudent in trying to cover all options ahead of Tuesday’s final decision of the year. 

Swaps linked to the Dec. 6 meeting dropped this week to as low as 2.94%, just 12 basis points above the effective cash rate of 2.82%. Even with contracts at 3% on Friday, traders are signaling there’s a chance the Reserve Bank will scale back to a 15 basis-point move instead of the standard quarter-point hike.

A smaller increase would round the cash rate back to levels that were the norm prior to the benchmark hitting a record-low 0.1% during the pandemic.

It would also deliver another shock to economists, given the vast majority forecast a quarter-point move. Governor Philip Lowe has regularly wrongfooted RBA watchers since initiating the current tightening cycle in May. 

Back then, he delivered a quarter-point hike to 0.35% when the market was pricing in 15-basis points to unwind the last of the pandemic-era rate cuts and return the benchmark to 0.25%. Lowe followed that up with a surprise half-point increase in June. 

Then he broke ranks with global counterparts in October by downshifting to a quarter-point, citing concerns that the sharp tightening already delivered by the RBA had yet to work its way through the economy.

“A smaller hike would round out the RBA cash rate at 3% and provide some breathing room to assess the incoming data flow over the summer break,” said Bloomberg Economics’ James McIntyre, who predicts a 25-basis-point increase followed by a 15 basis-point move in February. 

The RBA’s board doesn’t meet in January.

“The full impacts of the RBA’s rapid hikes are yet to emerge,” McIntyre said. “Whatever the size, we think the risk that the RBA’s December move could be its last is widely underappreciated.”

Australian house prices are tumbling and inflation came in slower than expected, data this week showed, highlighting the potential for the central bank to pause its tightening cycle in the near future. 

The RBA has already raised rates by 2.75 points over the past seven meetings and an eighth hike on Tuesday would result in the sharpest annual tightening cycle since 1989. 

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