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Reserve Bank of Australia Governor Philip Lowe has warned further interest rate increases can be expected in coming months to tackle inflation after raising the cash rate for the first time in over a decade.

The RBA raised the cash rate from a record low 0.1 per cent to 0.35 per cent at Tuesday's monthly board meeting, a larger increase than economists had been expecting after last week's strong inflation numbers.

The annual rate of inflation surged to 5.1 per cent and underlying inflation hit 3.7 per cent, well above the RBA's two to three per cent inflation target.

"If interest rates were to remain unchanged, inflation would be higher than this, perhaps substantially higher," Dr Lowe told reporters in Sydney during a rare press conference following the board meeting.

Tuesday's announcement was the RBA's first rate increase since November 2010, having held the rate at a record low 0.1 per cent since November 2020.

But Dr Lowe was reluctant to predict how quickly interest rates would rise from here.

"It's not unreasonable to expect the normalisation of interest rates over the period ahead could see them rise to 2.5 per cent," he said, matching the middle of the inflation target.

"How quickly we get there, and if we do get there, will be determined by how events unfold."

Financial markets are already pricing a cash rate of over 0.6 per cent at the June board meeting.

AMP chief economist Shane Oliver expects the cash rate to rise to 1.5 per cent by year-end and to two per cent by mid next year.

"But the RBA will only raise rates as far as necessary to cool inflation and high household debt has likely made rate hikes more potent," Dr Oliver said.

It was the first time the cash rate has increased during an election campaign since 2007 - a poll former Liberal prime minister John Howard went on to lose after campaigning on lower interest rates under his government.

Dr Lowe said the May 21 election had no influence on the board's decision, which has a mandate by parliament to achieve price stability, full employment and promote the economic welfare of the Australian people.

"We have operational independence and it's testimony to the political culture of Australia that the independence is respected. We take our decisions in the best interest of the country," he said.

If retail banks follow the RBA's signal it would add around $75 per month to repayments on a standard variable rate $500,000 mortgage.

CBA was the first of the big four banks to hike its variable home loan rates, saying it would pass on the full 0.25 percentage point increase.

ANZ and Westpac quickly followed suit.

The Morrison government put on a brave face after its campaign advertising boasted interest rates have been lower under the Liberals than Labor over the past 30 years.

"We don''t have an axe to grind with the Reserve Bank, they are independent of government," Treasurer Josh Frydenberg told reporters in Melbourne.

"They have to make decisions based on what they are seeing through the economy."

But shadow treasurer Jim Chalmers said it was a tough day for Australians.

"This is another aspect of Scott Morrison's triple whammy in his cost of living crisis - falling real wages, rising inflation rates and inflation rising out of control," he told reporters in Canberra.

Consumer confidence was already in decline following the spike in inflation and before the RBA's rate decision, a warning to retailers in a rising interest rate environment.

The weekly ANZ-Roy Morgan consumer confidence index - a pointer to future household spending - tumbled six per cent, the biggest drop since mid-January when the COVID-19 Omicron variant surged.

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Thousands of NSW teachers will walk off the job for 24 hours despite a government promise to address public sector wages in next month's budget.

NSW Teachers Federation president Angelo Gavrielatos says the strike on Wednesday will go ahead as state school teachers seek pay rises of five to 7.5 per cent while struggling with their workload.

Principals have been told to advise their school communities of what impact the strikes could have, with most schools providing minimal supervision.

Mr Gavrielatos called on parents to support the industrial action to ensure their children are taught by qualified teachers, warning of an unsustainable situation in education with more than 70 per cent are considering new careers.

Education Minister Sarah Mitchell on Tuesday urged the union to cancel the strike after directing her department to delay wage negotiations as part of a new teachers' award until after the June 21 budget.

Ms Mitchell said delaying wage arbitration while continuing other negotiations showed the government was working in good faith.

Premier Dominic Perrottet said the government had been fair and reasonable throughout negotiations while public sector unions representing teachers, nurses, paramedics and rail workers had taken industrial action.

Describing the scheduled strike as "disappointing and ... immature", the premier defended his government's track record amid soaring inflation.

"Over the last 10 years... we've had public sector wages grow at 5.4 per cent ... Our wages in NSW for the public service have grown above inflation and above private sector," he told 2GB Radio on Tuesday.

The action was part of a political campaign by the unions to cause havoc across NSW for the benefit of the Labor Party, he said.

"They are completely politically motivated and it's not just the Teachers Federation... It's certainly aligned with the Labor Party."

"I can't guarantee the teachers will be happy where we land," the premier noted.

Opposition education spokeswoman Prue Car said the rising cost of living was the real factor driving calls for public sector wage increases, and the premier could prevent further strikes by revealing what would change after the budget.

Mr Perrottet promised to address public sector wages in the budget but also acknowledged that may not be enough to appease frontline workers.

Mr Gavrielatos said there was no guarantee the government would make good on its promise.

The union had been seeking negotiations since February last year and won't wait until it sees what's in the budget before striking.

"We have been very patient," Mr Gavrielatos said.

He dismissed temporary changes to assessment and accreditation requirements that could ease teacher workloads announced on Tuesday as "gimmickry".

Ms Car said the government needed to do more if it wanted to stop the strike.

"A last minute delay to the IRC negotiations is not going to cut it," Ms Car said.

"If Dominic Perrottet is going to find a way through this crisis with our teachers in the budget, why won't he announce it now so that this (strike) can be avoided."

The government had been warned about chronic shortages in classrooms over the last decade but not acted to fix them, Ms Car said.

Mr Gavrielatos said pay rises were needed to attract more people to the profession and to retain existing staff.

He accused the government of trying to address shortages by lowering qualifications and standards for teachers under the guise of modernising the profession.

Mr Gavrielatos declined to predict how many teachers would strike but expects a high turnout amid unprecedented anger across the profession.

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The prime minister has expressed sympathy with mortgage holders who are facing rising interest rates, as the Reserve Bank highlighted the rate hike decision was not influenced by the election.

The country's central bank lifted the cash rate from 0.1 to 0.35 per cent at its board meeting on Tuesday, the first time interest rates have risen since 2010.

RBA governor Philip Lowe said there was evidence of wages growth picking up and the economy was proving to be resilient, with inflation rising quicker than expected.

While Tuesday's rate hike was the first in nearly 12 years, Mr Lowe said the interest rates would increase further.

"It's not unreasonable to expect the normalisation of interest rates over the period could see them rise to 2.5 per cent," he said.

"That would be more normal levels. How fast we will get there will be determined by events."

The increase was the first time interest rates have risen during an election campaign since 2007, when at the time, then-prime minister John Howard said he was sorry about the rise.

Speaking to reporters in Melbourne alongside Treasurer Josh Frydenberg, Scott Morrison said he understood the effect the rise in rates would have on mortgage holders.

"Of course I have sympathy with that (rate rise impact) ... and we expressed our concern about that in what we did in this year's budget," the prime minister said.

"I sympathise with Australians as they face high cost of living pressures. I sympathise with Australians when they face higher repayments on their homes."

Mr Lowe said the election campaign, now in its fourth week, had no bearing on the Reserve Bank's decision to lift the cash rate, stressing the bank was independent.

"The election had no influence on the decision today, the Reserve Bank was given a mandate by parliament to achieve price stability, full employment and promote the economic welfare of the Australian people," he said.

"We don't take the political situation into account, we do what is right for the country."

Mr Morrison said Australians would have been preparing for a rise in interest rates for some time, given the historically low levels.

"A 25 basis point increase in the cash rate, for those who will be paying more, that will be harder, and we understand that," he said.

"That is why tax reduction has been a key objective of our government and is ongoing."

Labor leader Anthony Albanese said it was hard enough already to make ends meet under Mr Morrison.

"Today it got even harder for millions of Australians," he said.

"Even before today's decision Australians were facing a full-blown costs of living crisis on his watch. Scott Morrison's economic credibility was already in tatters, now it's completely shredded."

Shadow treasurer Jim Chalmers said the coalition was focused on politics, despite Mr Morrison saying it had nothing to do with political interests.

"They see this exclusively as a political challenge," he said.

"Scott Morrison saying he's not focused on the politics is like Homer Simpson saying he is not focused on the donuts."

ACTU secretary Sally McManus said house prices had risen six times faster than wages under the Morrison government.

"If Scott Morrison hadn't been completely missing in action on wages, Australian workers paying off a mortgage would have been better prepared for today's interest rate rise," she said.

Assistant Treasurer Michael Sukkar said there was an expectation that property prices would moderate, following rises during the COVID-19 pandemic.

"A moderation in house price growth is something I have been talking about for months now," he told Sky News.

Business Council of Australia chief executive Jennifer Westacott said the decision underlined global volatility.

"The RBA has drawn a line under two years of emergency pandemic settings, now action is needed to manage the growing cost of living pressures on everyday Australians," she said.

© AAP 2022