Millions of Australians have been hit with another brutal mortgage blow after the Reserve Bank of Australia hiked interest rates by 0.25 percentage points, sending the cash rate surging to 4.35 per cent.

For an owner‑occupier with a $600,000 mortgage and 25 years remaining at the start of this year's hikes, another 0.25 adds $91 to their minimum monthly repayments. The total increase across the three hikes since February would be $272 a month.

The increase will lift the average owner‑occupier variable rate to 6.26 per cent, pushing it above the 6.25 per cent mark for the first time since January 2025.

The decision, which saw eight board members vote for the hike and only one in favour of holding the rate, has been criticised by economists and the government.

'Australians are already paying a hefty price for the war in the Middle East and this decision will make it tougher,' Treasurer Jim Chalmers said in a statement.

'It will add to the pressure that families and businesses are under at a time of ongoing global instability.'

The vote has also been slammed as a 'wrong decision' by Matt Grudnoff, senior economist at The Australia Institute.

'Higher interest rates will do nothing to open the Strait of Hormuz. Higher interest rates cannot change the world price of oil and bring down fuel prices,' he said.

'It has chosen to do something, even if that will make things worse, rather than risk being accused of doing nothing.

'The only tool the RBA has to fight inflation is to change interest rates. But interest rates are ineffective at stopping inflation caused by supply shocks.' 

It is another hit for Australians after the Australian Bureau of Statistics revealed last week that headline inflation had picked up to 1.1 per cent in March.

Annual inflation is at 4.6 per cent, up from 3.7 per cent, marking the fastest annual pace of price growth since September 2023.

'Interest rates are now back to the high levels we saw back in 2023, so the rate cuts have been fully reversed,' AMP's chief economist Shane Oliver told the Daily Mail.

'For someone with an average mortgage, which these days is about $660,000, it's going to cost them an extra $110 a month in interest payments, which is about $1,300 a year.

'So obviously there's going to be a hit to household budgets, particularly those with a large mortgage.'

For those without a mortgage, Mr Oliver said the situation is 'not so bad,' with higher interest costs having far less of an impact.

'Renters could face some upwards pressure on their rents, but that's not necessarily the case, as landlords seek to try and cover their interest,' he added.

'In fact, many Australians might benefit via higher bank deposit rates, because bank deposit rates will likely rise as well.'

Mr Oliver added that mortgage payments will go up once borrowers are granted a loan, but higher rates often lead to lower property prices, which could be a silver lining for potential homebuyers.

The economist said the overall effect is still more negative, as Australian households on average have more debt than they have in bank deposits.

'The value of total household debt in Australia is almost double the value of household bank deposits for the household sector as a whole,' Mr Oliver said.

'It is a negative, and that will act as a drag on spending in the economy.

'So if you're a business owner, a small business owner, people will be less cashed up and have less money to spend.

'That can mean lower demand for your products, fewer people coming into your cafe, particularly when you combine it with petrol prices, which I know are off their high but could well go back up again, given the situation in the Middle East.'

In a statement explaining its decision, the RBA cited that inflation had picked up 'materially' in the second half of 2025, and then had been hit by the conflict in the Middle East.

'In light of these considerations, the board assessed that inflation is likely to remain above target for some time and that the risks remain tilted to the upside, including to inflation expectations,' it read. 

'It was therefore judged appropriate to increase the cash rate target.'

The decision has come just one week before the Treasurer is due to announce the Labor government's fifth Federal Budget.

'The uncertainty and volatility in the global economy mean there is an even greater premium on responsible fiscal management,' he said on Tuesday. 

'The budget is already more than $233billion better than we inherited because the Government has found savings, kept a lid on spending growth and banked revenue upgrades.

'In the upcoming Budget, we'll continue that record of responsible economic management by saving more than we spend and banking all upward revisions to revenue.

'This Budget will be focused on fuel security, addressing inflation, boosting productivity and resilience and managing global economic uncertainty, and today's decision highlights why this is so important.'