Key Points
- The Reserve Bank of Australia has lifted the official cash rate quarter of a percentage point.
- It is now sitting at a nine-year high of 2.6 per cent, and interest rates for borrowers are expected to rise again.
The Reserve Bank of Australia (RBA) has lifted the official cash rate to its highest level in nine years.
The central bank announced on Tuesday it would increase the rate by a quarter of a percentage point to 2.6 per cent.
It's the sixth consecutive month the central bank has lifted the rate, with it now sitting at its highest level since July 2013.
Core is sitting at 4.9 per cent - still well above the RBA's target range of 2 to 3 per cent.
RBA Governor Philip Lowe said Tuesday's rate increase will help to reach that goal, with further increases "likely to be required over the period ahead."
"Today’s further increase in interest rates will help achieve a more sustainable balance of demand and supply in the Australian economy. This is necessary to bring inflation back down," he said in a statement.
How will mortgage holders be impacted by the rate rise?
The average Australian is paying hundreds of dollars more in mortgage repayments than this time last year after six straight months of interest rate rises.
The nation's official cash rate sat at a record low of just 0.1 per cent between November 2020 and May this year, when the first of a series of consecutive rises began.
According to financial comparison website Canstar, if the full 0.25 percentage point increase is passed onto mortgage holders, someone with a $500,000 loan over 30 years can expect their monthly repayments to rise by $78 a month.
That would take the total increases in their monthly repayments over the last six months to $730.
For someone with a $750,000 mortgage, the latest increase adds $117 to their monthly repayments. They can expect to be paying $1,096 more than they were before rates began rising in May.
Interest rate increases so far in 2022. Source: SBS News
"Be aware that lenders will assess you not at the current rate, but at a rate approximately three per cent higher, as they take future rises into consideration," he said in a statement.
"This means for many people to meet refinancing criteria, they must be able to meet repayments around 5 to 7 per cent – and likely higher after today - above the rate at which they were approved when they took out their current mortgage.
"Depending on the amount of the loan, this can equate to more than $2,000 per month higher."
Why the cash rate increase was smaller than previous months
Three of the big four banks - Westpac, NAB, and ANZ - had forecast a cash rate rise of 0.5 percentage points in October, which would have continued a trend seen over the past five months.
But the RBA board announced it would lift it by just half of that.
Mr Lowe noted that the central bank had increased the cash rate "substantially in a short period of time."
"Reflecting this, the board decided to increase the cash rate by 25 basis points this month as it assesses the outlook for inflation and economic growth in Australia," he said.
Treasurer Jim Chalmers said that won't be a comfort to many homeowners.
"Just because this is a bit less than many people were anticipating and just because it is consistent with what we are seeing around the world, it won't make it that much easier for Australians to find room in their household budgets to meet the increasing cost of servicing the mortgage," he told reporters in Canberra on Tuesday.
