The central bank's monetary policy board voted in a split 8-1 decision to raise the official cash rate by 25 basis points to 4.35 per cent as it wrapped up a two-day meeting on Tuesday.
For an average borrower with a $600,000 mortgage, the three consecutive hikes since February will cumulatively add more than $270 a month in interest repayments.
Treasurer Jim Chalmers said Australians were already paying a hefty price for the war in the Middle East and the RBA's decision made things tougher.
"It will add to the pressure that families and businesses are under at a time of ongoing global instability," he said.
The move was tipped by the majority of economists and financial markets, which had priced in the chance of a hike at about three-quarters.
Inflation was well above target before the Middle East conflict effectively closed the Strait of Hormuz, sending global energy markets into chaos.
Surging fuel prices have only amplified the central bank's inflation headache.
Deloitte Access Economics partner Stephen Smith said the rate rise was all but inevitable and more could be on the way.
"There is now a credible risk that rates could rise to levels not seen for around 15 years," he said.
The messaging from the board was relatively hawkish, raising expectations of further hikes.
The board said in its accompanying statement that inflation is likely to remain above target for some time and the risks remain tilted to the upside, including to inflation expectations.
NAB chief economist Sally Auld said the 8-1 split showed greater conviction than the last hike in March, when four board members voted to keep rates on hold.
"They have showed us very clearly today that they are prioritising their inflation mandate above the unemployment mandate," she told AAP.
But the central bank also has to take into account the risks to employment as part of its dual mandate while the Middle East conflict is likely to hit economic activity.
In its accompanying statement on monetary policy, RBA staff revised up their near-term forecasts for inflation but slashed their expectations for economic growth.
Under its base-case scenario, economic growth is expected to fall to 1.3 per cent by the end of 2026 while headline inflation is forecast to peak at 4.8 per cent in June.
But the bank also modelled worst-case scenarios, in which the conflict drags on for longer, which would see inflation hit 5.2 per cent.
Alternatively, a heavier hit to economic activity could result in the unemployment rate climbing to 5.1 per cent, compared to a base case of 4.7 per cent.
Even as the RBA board considered its decision overnight, tensions in the Middle East continued to escalate, driving up oil prices and exacerbating fears that inflation could be higher for even longer.
"A longer or more severe conflict could put further upward pressure on global energy prices," the board said.
"This would push up near-term inflation and could also increase inflation further out as these costs are passed through and if price rises get built into longer term inflation expectations."
Headline inflation surged to 4.6 per cent in the year to March, although many analysts believe the worst is yet to come as fuel prices flow through across the economy in coming months.
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