* BHP Group falls 1%

* Bank stocks rise on rate hike bets

* New Zealand stocks largely flat

July 19 (Reuters) - Australian shares closed lower on Tuesday after the minutes of its central bank meeting indicated more rate hikes were in the offing, while heavyweight BHP Group fell after it flagged inflation headwinds.

The S&P/ASX 200 index dropped 37.5 points, or 0.6%, to 6,649.6. The benchmark rose 1.2% on Monday.

Minutes of a Reserve Bank of Australia (RBA) meeting from earlier this month showed board members consider the current interest rate levels as quite low. The central bank had raised rates by 50 basis points at the meeting, its third hike in as many months.

"They're (the RBA) more or less hinting that they could have done a lot worse and that their intention is to continue," said Brad Smoling, managing director at Smoling Stockbroking.

"And that's very concerning, particularly in a country like Australia where the majority of mortgages are on a floating rate."

Banking stocks were up on potential rate hikes which tend to boost lending margins, with three of the "Big Four" banks rising between 0.7% and 1.5%.

The broader financial sector was unchanged.

Miners lost 0.7%, with BHP Group down 1% after it warned that a tight labour market and inflationary pressures would continue to hit operations through fiscal year 2023.

The miner raised its annual iron ore output forecast, but missed production estimates for the June quarter.

Bucking the mood, Australia's energy sector rose 2.5%, supported by sharp upward movement in oil prices overnight.

Refiner and fuel supplier Ampol logged a more than five-fold jump in refining margins at its refinery in Queensland in the second quarter on higher oil prices.

New Zealand's benchmark S&P/NZX 50 index was largely unchanged at 11,162.73. (Reporting by Harshita Swaminathan; Eiting by Vinay Dwivedi)