Frustrated mortgage holders could be in for further rates pain, as the last three hikes only dealt with domestic inflationary pressures.

In a grim warning to households, Westpac chief economist Luci Ellis said the central bank’s aggressive rate hiking cycle in 2026 has only dealt with domestic inflation rather than the fallout from the US – Iran war.

“The Australian economy already had high inflation and the Reserve Bank wanted to lean against that,” she said.

“Three hikes in a row, does get them to a bank where they had mostly done with the domestic inflation, but that was before the war.”

Coming into the conflict Australia’s headline inflation rate was 3.7 per cent, above the RBA’s target of between 2 to 3 per cent.

Following a two-day meeting, the RBA announced on Tuesday it had raised the official cash rate by a further 25 basis points, taking it to 4.35 per cent.

This completely reversed the three interest rate cuts in 2025.

The board said inflation was too high at 4.6 per cent, well above its target range of 2-3 per cent, and suggested further rate hikes could be on the agenda, saying it will pay close attention to future data and the global economic climate.

But Dr Ellis says the Reserve Bank is now turning its attention to global inflation including how higher prices for petrol, diesel and fertilisers flow onto other parts of the economy.

“Our assessment is it has been front loaded and extensive as we are already seeing notifications for higher prices for a range of goods and services,”

“For this reason we expect further rate hikes from here”.

NAB’s chief economist Sally Auld, agrees pointing to an additional hike in June, taking the official cash rate to 4.60 per cent.

“The RBA continues to face the challenge of already above target inflation, with second-round pressures from higher oil prices to flow through relatively quickly,” she said.

Meanwhile, Commonwealth Bank says interest rates will be held at 4.35 per cent, calling monetary policy “well placed”. They forecast interest rates will hold until the end of 2026.

In January before the conflict in the Middle East, oil prices were roughly $US56 ($A78) a barrel, before fluctuating between US$100 to $110 a barrel ($A138 -152) a barrel.

For every $10 increase in the price of oil, Australians pay an extra 10 cents at the fuel pump.

While the Reserve Bank would typically look through an oil price shock on its own, the central bank is weary of the second order impacts including businesses passing on costs to consumers.

The Reserve Bank governor Michele Bullock said it was understandable for businesses to pass on higher costs to customers.

“It is not unreasonable for firms because they are seeing their cost basis rise …. It is not unreasonable for them to want to recover their costs,” she said.

“The alternative is they can’t and they might end up going bust and that isn’t good either.”

Dr Ellis said she was surprised by the RBA giving firms the green light to pass on higher costs as it would ultimately drive up inflation.