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 mean they are back to the same position they were in before the RBA's shallow easing cycle in 2025, cumulatively adding more than $270 a month in interest repayments since February.
The Australian economy was getting "absolutely pummelled" by the war in the Middle East and Australians were paying the price, Treasurer Jim Chalmers said.
"We're seeing that again today with this interest rate decision," 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.
The messaging from the board was relatively hawkish, raising expectations it could yet hike rates further.
Governor Michele Bullock said the RBA was already seeing firms passing on cost pressures by increasing prices of goods and services, which raised the risk of even higher and more persistent inflation if left unchecked.
"We have already seen expectations for inflation over the next year or so increase, and we need to ensure that this does not lead to higher inflation expectations over the longer term," she said.
On the other hand, Ms Bullock said the decision put the board in a good space to observe how the war unfolded and what happened to prices and employment, potentially setting the scene for a pause in June.
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 Ms Bullock said she was still worried that unemployment could get too high with the Middle East conflict pushing down on 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.
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 to the rest of the economy in coming months.
Under the RBA's 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.
The RBA's forecasts also revealed a hawkish bias, given core inflation is expected to remain above target until 2028, even with another hike baked in and relatively bearish oil-price assumptions, Dr Auld said.
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.
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.
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