The main S&P/ASX200 index rose 30.3 points, or 0.3 per cent, to 8886.8, while the broader All Ordinaries gained 31.7 points, or 0.4 per cent, to 9008.9.
Most of the market's 11 sectors were in the green, with the major materials and consumer stocks leading the way, while the energy sector carried most of the loss-makers.
The Reserve Bank of Australia board ended its two-day meeting on monetary policy on Tuesday with a 25 basis point rise in the cash interest rate to 4.85 per cent.
The widely expected outcome takes the cash rate to its highest level in about 18 years, or since the global financial crisis.
Since its last board meeting in September, the RBA's fears that higher oil prices due to the war in the Middle East and elevated spending on artificial intelligence infrastructure would fan inflation have come to pass.
But while overseas factors were driving prices higher, domestic capacity pressures were also higher than previously thought, the RBA board said in an accompanying statement.
Financial markets are now asking if this latest move signals an end to the tightening cycle or is another instalment in an inflation battle to come.
As a result, all eyes were on a split in its board, with six members in favour of a hike and three voting for no change.
"With the hike largely priced in, markets were looking for guidance on what comes next," Global X ETFs senior investment strategist Marc Jocum said.
"The 6-3 vote ... suggests the bank may be prepared to wait and assess the impact of its tightening so far, as bond yields initially fell after the announcement."
The major banks were mixed, with the nation's biggest mortgage lender Commonwealth Bank up 1.3 per cent to $167.23, and National Australia Bank, which reports its annual results on Thursday, gaining 0.2 per cent to $40.97.
Westpac ended down one per cent at $36.82 and ANZ lost 0.5 per cent to $40.34.
Among the big miners, BHP dipped by 0.6 per cent to $56.42, Rio Tinto shed 0.1 per cent to $145.51 but Fortescue gained 0.9 per cent to $14.40.
Elsewhere, supermarket giant Woolworths added 1.1 per cent to $39.91 and Coles lifted by 1.7 per cent, to $21.64.
In the commodities market, Brent crude oil was trading lower at around $US105.25 a barrel on hopes of yet another possible breakthrough in the war in the Middle East, while spot gold was higher at $US3934.20 an ounce.
The Australian dollar was buying 69.79 US cents, down from 70.21 US centsÂ
ON THE ASX:
* The S&P/ASX200 rose 30.3 points, or 0.34 per cent, to 8886.8.
* The broader All Ordinaries gained 31.7 points, or 0.35 per cent, to 9008.9.
One Australian dollar trades for:
* 69.79 US cents, from 70.21 US cents on Monday at 5pm AEDT
* 110.17Japanese yen, from 110.78 Japanese yen
* 62.35 euro cents, from 62.78 euro cents
* 52.02 British pence, from 52.40 pence
* 124.03 NZ cents, from 125.03 NZ cents
