One of Australia's big four banks has hiked its fixed rate home loans just weeks after forecasting interest rates could hit the highest level since the Global Financial Crisis.

It comes as the Reserve Bank of Australia (RBA) is taking aggressive action to beat down inflation.

Westpac announced its fixed rates for home loans to owner-occupiers and investors would increase by 0.15 per cent in a message sent to customers on Thursday. 

'This change reflects the increased cost of fixed rate funding and ensures our fixed home loan rates remain aligned with current market conditions,' the message read.  

The rate increase will apply to all new fixed loans from today.

Westpac's figures show its lowest fixed rate is now 6.39 per cent.

Last month, the banking giant tipped the RBA would deliver three further rate hikes in 2026, adding hundreds of dollars to the average mortgage repayment as Middle East tensions fuel inflationary pressure. 

The bank has forecast the RBA to increase the cash rate by 0.25 percentage points in May, June and August, making a total of five hikes in 2026.

The RBA has already lifted rates twice this year, in February and March, and borrowers are being warned to brace for another on May 5, when the RBA announces its next cash rate decision. 

AMP economist Shane Oliver said a bout of stagflation - higher inflation and weaker growth - is already set in the near term even if there is a quick and sustained increase in ships flowing through the Strait of Hormuz.

'We expect the RBA to hike again but it’s a very close call,' he said.

'It can’t ignore the potential hit to economic growth, so the May RBA meeting we put the probability of a hike versus a hold at 60/40.' 

Oliver said RBA Deputy Governor Andrew Hauser's comments at New York University last week, where he called for government support of the RBA’s unpopular rate hikes to curb inflation, could be interpreted as signalling another rate rise. 

'Inflation expectations, wage pressures and cost and price pressures have all moved up since the War started and March data highlights that the labour market was tight going into the War, all of which biases the RBA towards more rate hikes,' he said.

'But against this, the labour market is a lagging indicator, and slumps in business and consumer confidence point to weaker economic conditions ahead which will dampen inflation eventually. 

'In the near term we think the RBA will give primacy to the increased threat to inflation and so see another rate hike in May.' 

During a fireside chat hosted by the Money Marketeers of NYU, Mr Hauser said Australia was heading for a 'big income shock' sparked by the escalating war in the Middle East. 

He made it clear the RBA would not hesitate to keep lifting rates until inflation was beaten into submission.

'It is a central banker's nightmare,' he said.

'Rates will have to go to a level where they bring inflation back to target. And if that means them going higher, it means them going higher.'

Oxford Economics head of research Harry Murphy Cruise went even further, warning mortgage holders could be hit by five more interest rate hikes by Christmas if there was no quick resolution to the Iran war.

'Australia had an inflation problem well before this conflict kicked off,' he said.

'Households are in a really tough spot at the moment. They are seeing inflation rise around them.'   

Headline inflation in Australia is currently 3.7 per cent and the RBA wants to keep inflation averaging between two and three per cent.

Most economists expect the RBA to lift rates to 4.35 per cent when it meets in May, while Westpac expects rates to be hiked again in June and August.

Westpac declined to comment.