The Reserve Bank has raised official interest rates in a decision announced on Tuesday afternoon that had been widely expected.

The 25-basis-point hike takes the official cash rate to 4.1 per cent and is the second time in consecutive meetings that the RBA board has opted for an increase.

However, the board was divided on the move, with five members voting for the rise and four for a pause.

“While inflation has fallen substantially since its peak in 2022, it picked up materially in the second half of 2025. Information since the February meeting suggests that some of the increase in inflation reflects greater capacity pressures,” the board noted in its post-meeting statement.

“In addition, the conflict in the Middle East has resulted in sharply higher fuel prices, which, if sustained, will add to inflation. Short-term measures of inflation expectations have already risen. As a result, the board judged that there is a material risk that inflation will remain above target for longer than previously anticipated.”

Canstar said the increase, assuming it was passed on in full by lenders, would add an extra $91 to minimum payments for someone with a $600,000 mortgage. With February’s increase, it’s a combined increase in payments of $181 a month since the bank first lifted rates.

It said the 25-basis-point rise would push the average owner-occupier variable interest rate into the 6s to an estimated 6.01 per cent. It will be the first time that average has been above 5 per cent since April 2025.

Money markets and the majority of economists had expected the central bank to raise the cash rate amid concerns inflation could reach 5 per cent following the spike in oil prices caused by war in the Middle East.

The turning point in commentary came courtesy of a hawkish podcast appearance by RBA deputy governor Andrew Hauser, which caused traders to reprice the chance of a March hike from about a third to more than two-thirds.

But JP Morgan economists Ben Jarman, Tom Kennedy and Tom Ryan thought Hauser’s comments were more balanced than the market appeared to interpret, highlighting “arguments on both sides”.

The trouble for the RBA is the conflict will cause prices to rise at the same time as it will push down economic growth – a stagflationary event.

This is different to the post-Covid inflation spike, in which the energy supply shock from Russia’s invasion of Ukraine interacted with high global growth. That meant there was less of a risk to employment, which the RBA also has a mandate to manage.

The JP Morgan trio said markets that assumed the Reserve would take a more hawkish approach this time around had ignored the inherent differences between the two cycle.

“There is … a sense that markets assume central banks will attempt to fight the last inflation war, keen to demonstrate vigilance after 2022’s experience,” they wrote in a research note.

“That episode was somewhat different, however, in that it was not a pure supply shock, with global growth running at 5 per cent.

“The implications for growth seem straightforwardly negative if a firmer than usual stance is taken to what is a more conventional supply shock this time.”

While the labour market was still running strong, other indicators such as consumption and capacity utilisation were showing early signs of easing, they said.

Official data is yet to show the effect of the RBA’s interest rate rise in February. It was the first rise in Australia’s official interest rates since November 2023, and the first move at all since a cut in August 2025.

Ahead of Tuesday’s announcement, Finance Minister Katy Gallagher said another increase would be difficult to stomach for mortgage-holders.

“If there is another interest rate increase, it will hit households hard,” she told ABC TV on Tuesday.

She said the impact of the war and further rate rises would be factored into the upcoming federal budget, to be handed down in May.

Treasurer Jim Chalmers has previously said Treasury forecasts for headline inflation – which could get into the “mid to high fours” – were being updated.

Opposition Leader Angus Taylor said the federal government had exacerbated inflation.

“The Reserve Bank is about to punish mortgage holders from all reports, but because of the government’s failures, inflation is homegrown,” he told Nine’s Today program.

Weekly inflation expectations lifted 0.6 percentage points to 6.7 per cent in the latest ANZ-Roy Morgan consumer confidence survey, released on Tuesday.

Consumer confidence fell to 68.5 – its lowest level since the start of pandemic lockdowns in March 2020, ANZ economist Sophia Angala said.

-with AAP