Former Reserve Bank of Australia governor Ian Macfarlane says inflation is unlikely to get back to the long-standing target of 2 per cent to 3 per cent in Australia or the US, and is more likely to settle as high as 5 per cent.

Mr Macfarlane, who served as governor of the RBA between 1996 and 2006, backed Tuesday’s 50 basis point rate hike to 0.85 per cent, and said Australians should brace for interest rates to climb above 4 per cent.