Interest rate rise won't lead to recession: Treasurer

Following the Reserve Bank's decision on Tuesday to lift the cash rate by 25 basis points to 3.35 per cent, Dr Chalmers said the rise would be felt immediately by mortgage holders.

The Reserve Bank also indicated more interest rate hikes would be needed over the months ahead to curb inflation.

While the treasurer said it would still remain to be seen whether the rates would increase more, he admitted the central bank's language on possible increases was clear.

"The decisions for the future haven't yet been taken, and I accept that the board's language yesterday was pretty straightforward in that regard," Dr Chalmers told ABC Radio on Wednesday.

"I'm not going to predict or pre-empt, I'm not going to second guess ... there are signs that inflation has begun to moderate in our economy."

The interest rate rise was the ninth in a row by the Reserve Bank, with the cash rate now at 3.35 per cent, the highest level since September 2012.

The treasurer said the rise was anticipated, and while it would impact on the economy, Australia would avoid a recession.

"The expectation of the Treasury forecasters is higher interest rates, combined with difficult global; conditions will slow our economy considerably, but they don't expect at this point a recession here in Australia," he said.

Dr Chalmers said no one in the cabinet had approached him on calls to remove Philip Lowe as Reserve Bank governor.

However, Dr Lowe's term in the role is up in September, although the treasurer did not indicate whether he would seek a replacement.

He said a decision would likely be made later in the year on the leadership of the central bank.

Australian Banking Association chief executive Anna Bligh said she hoped the predictions of further rate rises would not eventuate.

"Banks are acutely aware that for some of their customers, this is getting very, very difficult. They're in many cases already in discussions with those customers about how they can help," she told ABC Radio.

"This is going to really stretch them further. We expect that there are about 800,000 people coming off a fixed loan contract to a bank to a variable contract over the next 12 months."

NSW Premier Dominic Perrottet said he had written to the association, calling for banks to not pass on the interest rate rise to households.

"(Banks) are very quick to raise rates but not very quick to cut them. We're going through challenges. Family budgets around the state are under pressure," he told Nine's Today program.

However, Ms Bligh said the calls would largely go unheeded.

"Federal governments don't control interest rates. And it's tempting in politics to criticise that," she said.

Australian Associated Press