The Reserve Bank board on Tuesday lifted the cash rate by 50 basis points to 1.85 per cent - its highest level in more than six years.

But the bank also revised its inflation forecast to drop to a little above four per cent over 2023, and around three per cent over 2024, from a high of 7.75 per cent this year.

"The board expects to take further steps in the process of normalising monetary conditions over the months ahead, but it is not on a pre-set path," Reserve Bank of Australia Governor Philip Lowe said.

"The size and timing of future interest rate increases will be guided by the incoming data and the board's assessment of the outlook for inflation and the labour market."

AMP Chief Economist Shane Oliver said recent RBA rate hikes were already having an impact on demand.

He expected the cash rate would not have to go as high as first feared to take pressure off inflation.

"It looks like the RBA is getting traction in slowing demand - far earlier than normal," Mr Oliver said.

"While job indicators are still strong, these are lagging indicators. By contrast consumer confidence is at recessionary levels and well below where it's been at this point in past RBA rate hiking cycles."

RBC Capital Markets chief economist Su-Lin Ong said the RBA was trying to counter the perception inflation was the central bank's only concern, with growth and employment also important.

Ms Ong said the bank had kept the door open for a shift back to a more standard 25 basis point hike at some point.

Banks will likely respond in line with the RBA decision on Wednesday, with Treasurer Jim Chalmers warning it would sting households.

"Families will now have to make more hard decisions about how to balance the household budget in the face of other pressures like higher grocery prices and higher power prices," he said.

But he was "confident that we will emerge on the other side of this stronger than before".

The Australian Bureau of Statistics will release its cost of living indexes on Wednesday.

They measure the price changes of goods and services and their effect on the living expenses of selected household types, including pensioners and self-funded retirees.

Deloitte Access Economics partner Stephen Smith said business investment had been revised down compared to the last quarter.

"Interest rates are rising and higher borrowing costs for businesses are likely to weigh on investment," Mr Smith wrote in the firm's quarterly Investment Monitor.

"This is particularly true for new businesses, smaller businesses, businesses in sectors exposed to rising costs, such as construction, and businesses with low cash buffer."

Positives and negatives were finely balanced, with supply-chain disruptions easing but growth in public infrastructure peaking, commodity prices forecast to fall, and pandemic-driven tax breaks set to end, Mr Smith said.

Australian Associated Press