Financial markets are pricing in nearly an 80% chance that the Reserve Bank of Australia will deliver a third consecutive interest rate increase at its meeting on Tuesday. The expectation follows official figures released last week showing inflation rose by almost one percentage point to 4.6% in the year to March, the highest reading in two and a half years.

A spike of more than 30% in petrol prices over the month accounted for most of the inflationary uplift. The RBA's nine-member monetary policy board voted by a 5-to-4 majority to raise rates at its March meeting. Approximately 3.6 million Australian households are paying down a mortgage.

Phil O'Donaghoe, chief economist at Deutsche Bank, said monetary policy had limited near-term traction against the current price pressures. "The irony is that there is absolutely nothing that monetary policy can do about inflation in the next six months: it's all the oil price." he said.

O'Donaghoe said a further move would be aimed at anchoring expectations rather than addressing immediate prices. "If they do follow through next week with another rate rise, it is specifically about demonstrating to price and wage setters in the economy that they are serious about the inflation target." he said.

Robert Thompson, macro strategist at RBC Capital Markets, said he expected a less divided vote than in March. "I'd be surprised if it was as close as the last one; I think the case is clearer." he said.

Thompson said the central bank could address slower growth at a later stage. "I see it as a sequencing issue: inflation here and now is something you need to get in front of." he said. "The growth shock will absolutely come through, but will come a little bit later and the RBA can respond to that later."

Johnathan McMenamin, senior economist at Barrenjoey, said the central bank had a responsibility to act and retained the option to reverse course. "The job of the central bank is to maintain inflation expectations and smooth the cycle," he said. "And if they do end up squashing demand too much, they can turn around and cut. They can't do nothing."