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The Reserve Bank of Australia (RBA) has decided to lift the cash rate target by 25 basis points to 3.6 per cent, the highest since May 2012.

This is the 10th consecutive rate hike since May of last year when the RBA announced the first 25-basis-point increase, reports Xinhua news agency.

Following an RBA board meeting on Tuesday, the bank's Governor Philip Lowe said in a statement that high inflation makes life difficult for people and damages the functioning of the economy.

"And if high inflation were to become entrenched in people's expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment," said Lowe.

According to the latest data from the Australian Bureau of Statistics, the monthly Consumer Price Index (CPI) rose 7.4 per cent in the 12 months to January.

"The monthly CPI indicator suggests that inflation has peaked in Australia. Goods price inflation is expected to moderate over the months ahead due to both global developments and softer demand in Australia.

"Services price inflation remains high, with strong demand for some services over the summer. Rents are increasing at the fastest rate in some years, with vacancy rates low in many parts of the country," said Lowe.

The Governor revealed that the central forecast is for inflation to decline this year and next to be around 3 per cent in mid-2025.

Meanwhile, Lowe noted that growth in the Australian economy has slowed, with GDP increasing by 0.5 per cent in the December quarter and 2.7 pe rcent over the year.

"Growth over the next couple of years is expected to be below trend," he added.

The central bank acknowledged that the full effect of the cumulative increase in interest rates is yet to be felt in mortgage payments and some Australians are experiencing a painful squeeze on their budgets.

But Lowe said that a further tightening of monetary policy will be needed to ensure that inflation returns to the 2-3 per cent target range and that this period of high inflation is only temporary.